PURCHASING MANAGERS’ INDEX June 2017; Four positive headlines in a row

We release today the latest reading (no 51) of our manufacturing Purchasing Managers’ Index (PMI) for Nigeria, which takes the temperature of the sector. Our PMI was the first in Nigeria. It has developed into a core forward indicator. A PMI is a simple exercise. A selection of companies is asked their view each month on core variables in their business. The respondent, who is characteristically the purchasing manager in a larger firm, has three possible replies: better, unchanged or worse than the previous month. According to the standard methodology, 50 marks a neutral reading and anything higher suggests that the manufacturing economy is expanding. Readings are released at the very beginning of the new month.

In our case, the five variables are output, employment, new orders, delivery times from suppliers and stocks of purchases. They have equal weightings in our index. Our reports cover a representative sample of the sector with large, medium-sized and small firms. Any broad economic conclusions on the basis of our reports need to be tentative because we are operating in a near statistical void. The national accounts, unlike a PMI, are a historical indicator. The latest series (for Q1 2017) shows a fifth successive, albeit smaller, contraction, of -0.5% y/y. The shrinking of oil GDP again slowed, while remaining double-digit (-11.6% y/y), and non-oil GDP returned to positive territory (of 0.7% y/y). Manufacturing achieved growth of 1.4% y/y, compared with contraction of -2.5% the previous quarter. Food, beverages and tobacco, the largest segment, put in a good performance.

Our PMI reports now imply growth for four months in succession. (We did notice that the CBN’s own manufacturing PMI for June implies growth for three.) We expect continuing manufacturing growth and the end of the recession in the Q2 national accounts, which are due next month. We are not convinced that the experiment with multiple currency practices (MCP) will work in the months ahead. However, the CBN’s increased interventions have increased fx liquidity dramatically. Since manufacturers have greater access to imported inputs, it is no surprise that they report higher output, new orders and stocks of purchases.

If a respondent has the same answer on a sub-index for two successive months and then changes it for a third, our partner NOI Polls puts a “trigger” question in search of an explanation. In June one explanation provided for three separate sub-indices was an improvement in power supplies. This may conflict with the narrative in the media.

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