Recently released Purchasing Managers’ Index (PMI) a survey report by the Central Bank of Nigeria (CBN) showed slower growth in both manufacturing and non-manufacturing businesses in February 2020 as production level and new orders indices moved southwards.
According to the survey, the manufacturing composite PMI expanded slower to 58.3 index points in February (from 59.2 in January), the eighteenth consecutive expansion. The quiet growth in manufacturing composite PMI was due to slower expansion in production level index to 58.9 in February 2020 (from 59.6 in January 2020) which was driven by slower expansion in new orders – the index decreased to 59.1 in February 2020 (from 59.7 in January 2020).
58.9 in February 2020 (from 59.6 in January 2020) which was driven by slower expansion in new orders – the index decreased to 59.1 in February 2020 (from 59.7 in January 2020). New orders and production quantity slowed despite the decreasing selling prices (output price index melted to 53.7 from 55.3) which was engendered by lower average costs of production, (input price index moderated to 61.4 from 63.5).
Suppliers of raw materials delayed on the delivery time of inputs despite slower production level – supplier delivery time index moderated to 58.4 in February (from 60.5 in 59.1 in January).
Given the lower production level, slower demand and delay on delivery time, raw materials/work-in-progress expanded slower, to 58.5 from 60.7. As input prices moderated, producers seized the opportunity to increase their quantity of raw materials purchased – the quantity of purchases index expanded faster, to 55.5 from 54.8. We saw the stock of finished goods increase – its index expanded faster to 51.8 in February 2020 from 51.0 in January 2020 as sales slowed. The number of new hires recorded by manufacturers declined in tandem with the lower production volume – the index for employment fell to 56.4 points in February 2020 (compared to 57.3 points in January 2020).
Of the fourteen manufacturing sub-sectors surveyed, only three sub-sectors (or 21.43%) recorded faster expansions, lower than the six (or 42.86%) printed in January 2020. Particularly, manufacturers of ‘Cement’ and ‘Textile, apparel, leather & footwear’ registered the sharpest expansion in activities of 62.5 (from 52.0) and 61.3 (from 57.8) respectively.
Similarly, the non-manufacturing sector recorded sustained expansion but at a slower pace as its composite, PMI eased to 58.6 index points in February 2020 (from 59.6 index points in January 2020), the seventeenth consecutive expansion. This was driven by slower expansion in business activity and incoming business to 59.3 (from 59.8) and 58.8 (from 59.4) respectively. Business activity shrank as the average price of inputs rose faster, to 52.1 index points in February 2020 (from 51.2 index points in January 2020).
Service providers’ inventories fell, to 58.4 (from 60.4), as incoming business slowed. Also, employment expanded slower to 57.8 (from 58.9) amid slower business activity. Of the seventeen manufacturing sub-sectors surveyed, nine sub-sectors (or 52.94%) recorded faster expansions, showing a better performance than the six (or 35.29%) it printed in January.
Notably, service providers of ‘Repair, Maintenance/Washing Of Motor Vehicles’, ‘Utilities’ and ‘Management of companies’ registered the sharpest expansion in activities of 76.9 (from 69.7), 75.0 (from 65.6) and 66.7 (from 62.5) respectively.
The further slower expansions in composite PMIs in the second month of the year 2020 suggest a relatively slower Q1 2020 real GDP growth. We note that the slower PMI trend should continue in the month of March especially via the trade sector where imported goods needed in the domestic supply chain appear to have slowed amid the battle against COVID-19 which poses the risk of reduced production volume. More so, the slower new orders despite the reduction in selling prices reflect the lower disposable income of Nigerian workers (notwithstanding the recent implementation of the minimum wage) and could further hamper economic growth. Hence, we expect, the public sector to pull out all stops to emplace policies that will stimulate private-sector-driven economic activities.