PMI reading no 57: A seasonal surge

Our manufacturing Purchasing Managers’ Index (PMI), the first in Nigeria, rose strongly in December to 68.7 from 60.1. Our partner, NOI Polls, has gathered and compiled the data. The index is found in developed markets (such as the ISM’s in the US), larger emerging markets such as China, India and Brazil, and a few other frontiers. It is based upon manufacturers’ responses to set questions on core variables in their businesses. In our case, it is not seasonally adjusted.

PMIs are forward-looking indicators of sentiment in all economies, and have the proven capacity to move financial markets in developed economies. To reinforce the point, the latest national accounts cover the third quarter (July-September) and the latest PMI the third month of the fourth.

In the unweighted model of our choice (the ISM’s), respondents are asked whether output, employment, new orders, suppliers’ delivery times and stocks of purchases have improved on the previous month, are unchanged or have declined. A headline reading of 50 is neutral. We have posted nine negative readings since our launch in April 2013, the latest in January 2017.

Our sample is an accurate blend of large, medium-sized and small companies.

We have added “trigger” questions, which apply when the respondent has the same answer on a sub-index for two months and then changes it for the third.

All five sub-indices rose in December: the highest was 73 (stocks of purchases). The headline reading has been above 50 since March.

The principal driver has been the CBN’s use of multiple fx windows, which has transformed liquidity. Manufacturers, or indeed any users of fx, now have reliable access to fx provided that they are comfortable with the price. This is evident from the PMIs but also inflation data and listed company results.

This positive impact has gained momentum since July. Weekly turnover on the investors’ and exporters’ fx window (NAFEX) has risen to about US$1bn. A more recent boost in both October and December has been the seasonal rise in demand for the year-end celebrations. The readings in December have been particularly strong although we should caution that a similar surge the previous year was followed by a sharp fall in January 2017.

Manufacturing expanded by 2.6% q/q in Q3 2017. We can see the momentum of the improved fx availability in the growth of the two largest sub-sectors: food, beverages and tobacco (0.6%), and textiles, apparel and footwear (7.5%).

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