PMI reading no 58: a post-holiday slump

Our manufacturing Purchasing Managers’ Index (PMI), the first in Nigeria, slumped in January to 54.6 from 68.7. 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 first month of the first quarter of the new year.

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. Two particularly interesting comments this time are references to the fuel scarcity and the non-payment of salaries.

All five sub-indices declined in December, four of them by more than ten points. That for employment moved into negative territory.

The headline in January has posted a monthly fall every year since our launch. We cautioned one month ago that such a fall was expected. The holiday season has ended, and with it the temporary boost to consumer demand.

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.

Manufacturing expanded by 2.6% q/q in Q3 2017. The two largest sub-sectors are food, beverages and tobacco, and textiles, apparel and footwear, which posted growth of 0.6% and 7.5% respectively.

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