PMI reading no 70: a seasonal slump

Our manufacturing Purchasing Managers’ Index (PMI), the first in Nigeria, slumped in January from 60.2 to 51.5. 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 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, unlike the national accounts, are forward-looking indicators of sentiment, and traditionally released on the first working day of the new month. This latest report covers the first month of the first quarter while we are waiting for the Q4 2018 national accounts.
  • 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 twelve negative readings since our launch in April 2013, the latest in July 2018.
  • Our sample is an accurate blend of large, medium-sized and small companies, based across the country. All five sub-indices declined sharply in January. However, all closed in positive territory, albeit much closer to neutral. The proportion of unchanged responses rose for four of the five.
  • The index not being seasonally adjusted, the headline reading crashed in January, as has been the case each year since the launch of our index. The scale of the crash was at least comparable to that recorded in 2016, 2017 and 2018 in a standard reaction to the end of the holiday season.
  • Another trend discernible in December each year is a spike in currency in circulation, accompanied by a decline in demand deposits. The reverse follows in January as households pay cash they have not spent in the holiday season back into their bank accounts.
  • The exercise includes questions triggered when a respondent has given the same answer for a sub-index for two successive quarters and then changes it for the third. The common explanations for the lower readings in this report are the end of the holiday season, the lay-off of temporary staff and the resulting slump in new orders.
  • As the index slumps in January, so it stages a recovery in February. Indications from listed companies in consumer goods suggest that the turnaround will be modest

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