PMI reading no 64: again below neutral
Our manufacturing Purchasing Managers’ Index (PMI), the first in Nigeria, declined gently in July from 49.8 to 48.9. 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 are forward-looking indicators of sentiment, and have the proven capacity to move financial markets in developed economies.
- 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 now posted twelve negative readings since our launch in April 2013 including the last three.
- Our sample is an accurate blend of large, medium-sized and small companies, based across the country.
- Two of the five sub-indices declined in July, with three again in negative territory (output, employment and stocks of purchases).
- The proportion of unchanged responses increased for four of the five sub-indices, and exceeded 80% of all responses for delivery times.
- Manufacturing appears to have settled on a plateau, and respondents to have adopted a wait-and-see mode. It has access to freely available fx but is unsure of demand growth. An interesting trend this time is that the large companies give better readings than the two other segments, which could indicate that they are able to take a longer view.
- 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. In this latest report, explanations given for declines in readings include: weak demand, the rainy season, poor electricity supplies, high rates of duty on imports of raw materials and stiff competition from China.
- The report sits well with most of the results reported by listed non-bank companies. Even Nestle Nigeria reported sales growth of just 12% y/y for Q2 2018, ie in line with inflation. The report is also consistent with the economy’s emergence from recession, which has been largely driven by the recovery in oil output. The non-oil economy expanded by just 0.8% y/y in Q1 2018.