PMI reading no 61: uncertain of the future

Our manufacturing Purchasing Managers’ Index (PMI), the first in Nigeria, declined sharply in April from 59.4 to 51.0. 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, and have the proven capacity to move financial markets in developed economies. Whereas the latest national accounts cover the fourth quarter (October-December), the latest PMI captures the first month of the second quarter of 2018.
  • 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.
  • All the five sub-indices declined in April, one into negative territory (employment) and one to neutral (output).
  • The common trend for responses across all five sub-indices was a clear shift from higher/larger to no change from the previous month: the percentage was over 70% of respondents in all cases and close to 90% in three.
  • Manufacturing would therefore appear to have settled on a plateau and respondents to have adopted a wait-and-see stance. The sector, and indeed the whole economy, has enjoyed the boost from the CBN’s fx reforms in H1 2017. Fx is freely available for all users provided that they are happy with the price in the relevant window.
  • The responses for the three core sub-indices (output, employment and new orders) tell us that in April the sector was uncertain of future demand. This would be consistent with most of the results reported by listed non-bank companies for Q1 2018. It is also consistent with the nature of the economy’s emergence from recession, which has been largely driven by recovery in oil output (decline in sabotage).
  • Manufacturing did grow in Q4 2017 by 5.0% q/q, which is a normal development in the main holiday season of the year.

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