Our manufacturing Purchasing Managers’ Index (PMI), the first in Nigeria, fell again in May from 51.0 to 49.2. 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.

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 ten negative readings since our launch in April 2013.

Our sample is an accurate blend of large, medium-sized and small companies, based across the country.

All the five sub-indices declined in May, with three now in negative territory (output, employment and stocks of purchases).

The prevalent trend across all sub-indices was a shift from higher/larger to no change from the previous month: the percentage of no change responses varied from 69% of respondents (output) to 87% (employment).

Manufacturing therefore seems to have settled on a plateau, with a modestly downward bias, and respondents to be sitting on the proverbial fence. The sector has access to freely available fx as a result of the CBN’s reforms in H1 2017. However, it is unsure of demand.

The exercise also 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 report, explanations for the decline in readings are numerous: the rainy season, Ramadan, poor roads, power shortages and soft demand due to pressures on purchasing power.

The report is consistent with most of the results reported by listed non-bank companies for Q1 2018. It is also consistent with the nature of 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, and so well below the rate of annual population growth (estimated at +/- 2.8%).