February PMI readings give mixed signals on Nigeria’s economic recovery

…FBNQuest PMI-50

…CBN PMI-44.6

…Markit Stanbic IBTC PMI-52.2.

Optimism is creeping back into the Nigerian economy but very slowly; indications from three different Purchasing Managers Index (PMI) reading from three different sources in a week have shown.

A PMI measures the confidence level of purchasing managers whose purchasing decision is usually influenced by management’s outlook of the future.

In calculating a PMI, “a selection of companies is asked their view each month on core variables in their business. The respondent, who is characteristically the purchasing manager in a larger firm, has three possible replies: better, unchanged or worse than the previous month. According to the standard methodology, 50 marks is a neutral reading and anything higher, suggests that the manufacturing economy is expanding. Readings are released at the very beginning of the new month” states FBNQuest, which first introduced PMI measures in the Nigerian economy.

The February FBNQuest PMI, released on 1 March is at 50, which is neutral, meaning purchasing managers are maintaining the status quo. They are neither optimistic nor pessimistic about future economic growth. But the FBNQuest February PMI figure is also an improvement on the 48.6 reading in January of this year. Which also indicates that purchasing manager’s view about the economy has moved from pessimism to being optimistic about the future.

“The marginal increase in the headline reading from 48.6 posted in January, points to a slow pickup in economic activity. Typically, January through to March are perceived as relatively slow months in terms of naira liquidity. The purchasing power of consumers remains soft”, explained analysts at FBNQuest on the February PMI reading.

The analysts note, “Manufacturing companies have borne the brunt of the macro challenges. The high cost of imported inputs due to foreign exchange scarcity, power shortages, increased fuel prices for generator usage and the steady inch-up in inflation have been painful. However, we note that import substitution strategies are beginning to gain some traction with credit support from the CBN and state investment vehicles.”

But while the PMI figures from FBNQuest are showing neutral, the PMI figures from the Central Bank of Nigeria (CBN) released on 2 March show that purchasing managers are actually increasingly pessimistic about the country’s economic recovery in February.

The manufacturing sector purchasing managers index, as measured by the CBN, declined to 44.6 index point in February, from 48.2 point in January, according to the CBN.

The PMI report from the CBN showed Production level declining from expansion, new orders declining at a faster rate, supplier delivery time worsening at a slower rate, employment level declining faster, and raw material inventories declining at a faster rate.

Fourteen of the sixteen sub-sectors reported declined in February. These sectors include; transportation equipment; paper products; electrical equipment; printing and related support activities; fabricated metal products; chemical and pharmaceutical products; furniture and related products; cement; plastics and rubber products; petroleum and coal products; textile, apparel, leather and footwear; computer and electronic products; nonmetallic mineral products and primary metal. The appliances and components and food, beverage and tobacco products subsectors reported expansion in the review period.

The production level index for manufacturing sector also contracted in February 2017. The index at 45.2 points indicates a decline in production level when compared to the 51.3 points in January.

The 12 manufacturing sub-sectors recorded declines in production level during the review month in the following order: electrical equipment; paper products; transportation equipment; chemical and pharmaceutical products; plastics and rubber products; furniture and related products; fabricated metal products; printing and related support activities; computer and electronic products; primary metal; textile, apparel, leather and footwear and cement.

The petroleum and coal products sub-sector remained unchanged, while the appliances and components; food, beverage and tobacco products and nonmetallic mineral products recorded growth in production.

However, a third PMI figure released on 3 March, counters the pessimism in the CBN PMI.

The Markit Stanbic IBTC Nigeria Purchasing Managers’ Index (PMI) rose to 52.2 in February, after rising to 51.9 in January, the strongest reading since December 2015 according to a report by Reuters. As noted earlier, a reading above 50 denotes growth and is the strongest among the three PMIs released this week.

The Markit Stanbic IBTC Nigeria Purchasing Managers’ Index (PMI) indicate that private sector activity expanded for a second straight month in February, driven by a rise in new business despite a fall in export sales.

“The faster than anticipated recovery in the economy may not be unrelated to the fact that survey respondents continue reporting an expansion of output, perhaps due to increased supply of foreign exchange needed for import activity and domestic investment,” Ayomide Mejabi, Economist at Stanbic IBTC Bank was quoted by Reuters as saying.

The Central Bank has increased foreign exchange sales on the official market in recent days, after effectively devaluing the naira for individuals, offering to sell them dollars at about half the premium charged on the black market.

Mejabi said output prices continued to rise in February, but the pace was significantly slower and fell to their lowest level since January 2016.

The Stanbic IBTC Markit report said an overall increase in new business led to a rise in purchasing activity, as companies added to their inventory at a faster rate and that growth occurred despite a fall in new export sales.

The National Bureau of Statistics (NBS) confirmed on 28 February that the Nigerian economy contracted by 1.51 percent in February. But economists have expressed strong optimism that the economy will recover in 2017.
Analysts say the different outcomes of the three different PMIs could be explained by methodology and timing differences. The FBNQuest PMI and MarkitStabicIBTC PMI moved towards positive territory indicating that the economy is in a recovery mode.