FBNQuest’s manufacturing Purchasing Managers’ Index (PMI) slowed to 53.7 in September from 54.8. According to the investment bank, two sub-indices improved, and all sub-indices ended in positive territory.
It noted that the proportion of unchanged responses increased for all five sub-indices.
Meanwhile, the Central Bank of Nigeria’s (CBN) Manufacturing PMI in the month of September expanded to 56.2 index points, indicating expansion in the manufacturing sector for the eighteenth consecutive month.
The latest data released by the apex bank showed that the real sector grew at a slower rate when compared to the index in the previous month.
“At 58.4 points, the production level index for the manufacturing sector grew for the nineteenth consecutive month in September 2018,” the report stated.
The PMI is based upon manufacturers’ responses to set questions on core variables in their businesses. In our case, it is not seasonally adjusted.
PMIs, unlike the national accounts, are forward-looking indicators of sentiment, and traditionally released on the first working day of the new month. They can 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,” FBNQuest explained.
The exercise 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. From the trigger questions, cumbersome bureaucratic processes slowed clearance procedures of imported raw materials which had an adverse effect on the delivery times sub-index.
The employment sub-index was unchanged at 51.5. Respondents reporting no change remained high. In our view, most manufacturers are not sufficiently confident of future demand to increase their workforce.
The national accounts for Q2 2018 show that manufacturing growth slowed to 0.7 per cent y/y from 3.4 per cent the previous quarter. The growth of its largest segment (food, beverages and tobacco) slowed to 1.2 per cent y/y from 5.5 per cent.
“The manufacturing sector continues to enjoy the benefits of the CBN’s exchange-rate reforms since greater fx availability translates directly into increased access to imported inputs. However, demand remains soft. Although, there was a pickup in output, we note that reduced cash circulation had a negative impact on sales.”
