The CBN recently released the Purchasing Managers’ Index (PMI) Survey Report for November and in line with the positive trend which began in April 2017, the survey showed sustained improvements in the manufacturing and non-manufacturing sectors. The continuous expansion in PMI readings is broadly attributable to improved liquidity and stability in the FX market – anchored by higher oil receipt and increased policy flexibility - which have buoyed business and investment sentiment.
The manufacturing PMI expanded for the 8th consecutive month, settling at 55.9pts, 0.9pts higher than 55.0pts recorded in October. This growth was majorly driven by faster increases in all sub-categories of the index, including Production Level (59.3pts), New Order (54.3pts), Supplier Delivery Time (56.0pts), Employment Level (53.7pts) and Inventories (57.1pts) which grew 0.9pts, 1.5pts, 0.5pts, 0.6pts and 0.6pts points M-o-M respectively. Consequently, expansions were recorded in 12 of the 16 subsectors. Petroleum & coal products, printing & related support activities, computer & electronic products, textile, apparel, leather & footwear, plastic & rubber products, chemical & pharmaceutical products, furniture & related products, paper products and cement & primary metal all recorded growth in the period while appliances & components, fabricated metal products and transportation equipment sectors weakened in the month. The electrical equipment sector was flat.
Similarly, non-manufacturing PMI expanded for the 7th consecutive month, settling at 57.6pts (up from 54.9pts in October), which further reinforces the fact that business conditions have improved. As such, Business Activity (59.4pts), New Orders (58.4pts), Inventories (58.0pts) and Employment (54.6pts) increased 1.9pts, 2.7pts, 4.6pts and 0.2pts M-o-M respectively in November. Accordingly, 15 of the 18 subsectors improved within the period under review. Since the improvement in access to foreign exchange starting from when the CBN created a supply window for PTA/BTA and travel allowances, the PMI has risen at an increasing rate from as low as 44.6pts in Feb-2017 to above 50.0pts in April-2017 when the Investors’ and Exporters’ FX window was launched and remained above this level till Nov-2017. This highlights the dependence of domestic manufacturing as well as non-manufacturing activities on access to forex.
We opine that the positive trend in PMI readings will be sustained into the New Year on the back of demand growth associated with the Yuletide season and positive outlook for the FX market. Yet, the weak correlation recently observed between Non-Oil sector growth and PMI, perhaps suggests that the sample used in PMI survey may not be consistently representative of the broader economy. Hence, we remain conservative on fourth quarter GDP growth at 1.7% and our full year growth estimate at 0.7%.