October PMIs Near 50 Index Points, Signal Improved Economic Activities in Q3 2020

October PMIs Near 50 Index Points, Signal Improved Economic Activities in Q3 2020

Freshly released Purchasing Managers’ Index (PMI) survey report by Central Bank of Nigeria (CBN) showed that the manufacturing and non-manufacturing sectors witnessed further recovery from contraction, nearing 50 index points (which indicates neutrality), as production level and business activities picked amid improved new orders.

Specifically, the manufacturing composite PMI printed slower contraction to 49.4 index points in October (from 46.9 in September), the sixth consecutive contraction. The slower contraction in manufacturing composite PMI was chiefly driven by an increase in new orders index, to 51.2 in October 2020 (from 46.4 in September 2020), which resulted in higher production – the production index pointed to 50.0 (from 47.3).

October PMIs Near 50 Index Points, Signal Improved Economic Activities in Q3 2020 Brandspurng1
Source: National Bureau of Statistics, 0pec, Cowry Research; *Cowry Research Estimates

October PMIs Near 50 Index Points, Signal Improved Economic Activities in Q3 2020

Producers’ costs of production increased slightly (input prices index rose to 70.9 from 69.8) and they were able to pass on costs to customers (output prices index increased to 60.0 from 58.8), suggesting a possible rise in inflation rate going forward even as festivities beacon.

Also, supplies of raw materials to manufacturers slowed amid increasing demand from producers – supplier delivery time index fell to 51.8 in October (from 53.5 in September). Given the delay from suppliers’ end, manufacturers stocked up raw materials – raw materials/work-in-progress index moved up, to 46.2 from 43.0 – reflected by the quantity of purchases index which inched up to 47.8 from 42.9.

We saw the stock of finished goods fall – its index rose to 44.9 in October 2020 from 45.8 in September 2020 – on account of improved sales. Similarly, contraction in staffing levels in the manufacturing space slowed given the increase in production volume – employment index rose further to 46.0 points in October 2020 (compared to 44.1 points in September 2020).

Of the fourteen manufacturing subsectors, Transportation equipment sub-sector index expanded to 59.6 points in October 2020 from 58.1 points in September 2020 while the Printing & related support activities, Chemical & pharmaceutical products and Textile, apparel, leather & footwear sub-sectors recovered from contractions to 52.9 points (from 43.3 points), 52.6 points (47.8 points) and 50.9 points (47.5 points) respectively. Meanwhile, the non-manufacturing sector also recorded slower contraction as its composite PMI increased to 46.8 index points in October 2020 (from 41.9 index points in September 2020).

This was chiefly driven by improved business activity to 48.7 (from 43.7) as incoming business index jumped to 47.8 from 39.5. Consequently, the employment index point further increased, to 44.2 (from 37.4). The incoming business still improved in spite of the rise in the average price of inputs, to 52.9 index points in October 2020 (from 51.2 index points in September 2020).

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Elsewhere, crude oil prices at the international oil market fell further amid slower demand from Europe and Asian refiners as well as a 0.89% weekly rise in U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) to 492.43 million barrels as at October 23, 2020 (inventories have risen by 12.21% y-o-y from 438.85 million barrels as at October 25, 2019).

WTI crude price moderated week-on-week (w-o-w) by 11.36% to USD36.02 a barrel; in spite of 2.78% w-o-w rise in US crude oil input to refineries to 13.39 mb/d as at October 23, 2020 (albeit, It has declined y-o-y by 16.31% from 15.99 mb/d as at October 25, 2019). Elsewhere, Brent price also tanked by 11.47% to USD37.65 a barrel as at Thursday, October 29, 2020; also, Bonny Light fell by 11.42% to USD37.23 a barrel.

In line with our expectations, PMIs improved in the month of October 2020 amid progressive ease in lockdown. Nevertheless, we expect GDP in Q3 2020 to still herald the anticipated economic recession even as economic growth may partly be dented by the recent riots across the country.