Nigeria: PMI Reading No 59: Stable and Positive

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Our manufacturing Purchasing Managers’ Index (PMI), the first in Nigeria, rose marginally in February from 54.6 to 54.7. 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 other 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. To rephrase this point, the latest national accounts cover the fourth quarter (October-December) and the latest PMI the second month of the first quarter of 2018.
  • 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 nine negative readings since our launch in April 2013, the latest in January 2017.
  • Our sample is an accurate blend of large, medium-sized and small companies.
  • We have added “trigger” questions, which apply when the respondent has the same answer on a sub-index for two months and then changes it for the third. The more interesting comments this time are the responses to employment, citing the recruitment of new staff in the light of new contracts won.
  • Two of the five sub-indices (output and employment) improved in February.
  • Following the usual seasonal slump in the index in January, we now have a stable headline reading. While access to fx has been transformed (see below), household demand is soft. The emergence of the broader economy from recession is largely a function of a recovery in oil output (decline in sabotage).
  • The headline reading has been above 50 since March. The turnaround is largely due to the CBN’s experimental fx policy. The consequence of its use of several windows is that fx abundance has replaced scarcity. Manufacturers, or indeed any users of fx, now have reliable access provided that they are comfortable with the price. This is evident from our PMI readings but also inflation data, the balance-of-payments and listed company results.
  • Manufacturing expanded by 5.0% q/q in Q4 2017. The two largest sub-sectors are food, beverages and tobacco, and textiles, apparel and footwear, which posted growth of 5.8% and 7.8% respectively.
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