Purchasing Managers’ Index records modest improvement in July

 

FBNQuest has reported modest increase in manufacturing Purchasing Managers’ Index (PMI) for the month of July, 2016.

FBNQuest, the merchant banking and asset management business of FBN Holdings Plc today said, the latest report for its manufacturing Purchasing Managers’ Index (PMI), the first of its kind in Nigeria, shows a modest improvement from 50.2 in June to 51.0.

The index update is a familiar data release at the start of the calendar month in developed markets (such as the ISM’s in the US), the larger emerging markets such as China and a few other frontiers. It is based upon the responses of manufacturers on core variable in their businesses.

According to FBNQuest, “PMIs are forward-looking indicators of sentiment, and have the proven capacity to move financial markets. By way of example, the flash reports for manufacturing and services PMI for the UK for July last week led to a sell-off in GBP and a boost to UK equities on hopes of rate cuts.”

“In the unweighted model of our choice (the ISM’s), respondents are asked whether output, employment, new orders, delivery times and stocks of purchases have improved on the previous month, are unchanged or have declined. A reading of 50 is neutral. We have posted six negative headline readings since our launch in April 2013 including three this year.”

It stated that, two of the five sub-indices were negative in July. The highest reading was 57 for delivery times.

“The modest upticks in the headline reading in both June and July suggest that manufacturing may have climbed onto a plateau. In the latest, we notice a marked trend towards no change as the respondent’s preferred answer: this was the case for 68 per cent of respondents on output, and 52 per cent of delivery times, for example.
If we have reached a plateau, then the recent floor came in first quarter, when manufacturing GDP contracted by -7.0 per cent year on year.”

It noted that, the new flexible exchange-rate regime has been in place for little more than one month.

“Manufacturers (and other users) will have seen little, if any increase in fx supply. Those successful buyers will have seen a steady depreciation from N280 per US dollar at launch on 20 June to N313 on Friday, as recorded by the CBN. The weakness is likely to continue until autonomous suppliers come to the market”, FBNQuest said.