Freshly released Purchasing Managers’ Index (PMI) survey report for July 2019 showed faster expansions in both the manufacturing and non-manufacturing businesses amid faster growth in new orders which may be corroborated by the improved H1 2019 financial results so far observed for a majority of the quoted companies.
According to the survey, the manufacturing composite PMI expanded to 57.6 index points in July 2019 (from 57.4 in June 2019), the twenty eighth consecutive expansion.
The increase in manufacturing composite PMI was driven by faster expansion in new orders to 57.2 in July 2019 (from 55.9 in June 2019) as producers reduced selling prices – output prices expanded slower, to 52.2 (from 52.4), which was induced by lower cost of raw materials; input prices fell to 59.5 in July 2019 (from 62.7 in June 2019).
Despite the improved new orders, producers still reduced their production ouputs as production level index declined to 58.9 (from 59.3).
Amid lower production level and input prices, the level of raw materials/inventories rose – work in progress/inventory index rose to 56.2 in July 2019 (from 55.0 in the preceding month) – as quantity of raw materials purchased surged given that quantity of purchases index rose to 52.5 (from 52.1).
Number of new hires recorded by manufacturers reduced in tandem with the lower production volume, albeit marginally – the index for employment fell to 57.3 points in July 2019 (compared to 57.5 in June 2019).
Of the fourteen manufacturing sub-sectors surveyed, six sub-sectors (or 42.86%) recorded faster expansions, higher than five 35.71% in June 2019.
Specifically, manufacturers of ‘Petroleum & coal products’ and ‘Paper products’ registered the sharpest expansion in activities of 72.5 (from 65.0) and 59.5 (from 55.6) respectively.
The non-manufacturing sector appeared to have also resumed its fast growth trajectory as the non-manufacturing composite PMI expanded faster to 58.7 index points in July 2019 (from 58.6 index points in June 2019), the twenty seventh consecutive expansion. This was partly driven by faster expansion in incoming business to 60.1 (from 59.2) which necessiated the increase in inventory level to 58.9 (from 58.8).
However, employment expanded slower to 57.6 (from 58.2) and 58.0 (from 58.3) respectively. Meanwhile, the July 2019 Business Expectations Survey (BES), conducted by Central Bank of Nigeria (CBN) from July 8 to 12, 2019, on a sample size of 1,050 businesses nationwide, revealed that respondents expressed optimism on the macroeconomy for the month of July 2019 as the overall confidence index (CI) registered 28.1 index points (better than 27.3 registered in June).
Business outlook for August 2019 showed even greater confidence in the macroeconomic environment with 64.1 index points. This was the case, particularly for the wholesale & retail trade as well as services.
Businesses remained optimistic in their outlook on financial conditions (working capital) and average capacity utilization as their indices stood at 11.2 and 14.1 index points in July – although optimism waned compared to 12.8 and 18.8 respectively registered in June.
Similarly, outlook on the volume of total order and business activity in August 2019 remained positive, but relatively weaker at 13.0 points and 11.0 points compared to 14.9 and 13.8 respectively in the preceding month.
The weaker optimism partly resulted from perenial businesses constraints of insufficient power supply, high interest rate and unfavourable economic climate; in addition to unclear economic laws and unfavourable political climate amongst other things. We feel that the increase in new order is likely to be short-lived as the new minimum wage has yet to be implemented for federal workers earning below N30,000.
More so, the worsened insecurity still constitute a major challenge as it continues to be a drain on government’s finances.
However, we reiterate the need for Nigeria’s fiscal authority to complement the efforts of its monetary authority in order to boost economic growth.