Oct. PMI Improves as New Orders, Production Output Increase Despite Rising Selling Prices…

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Freshly released Purchasing Managers’ Index (PMI) survey report by Central Bank of Nigeria (CBN) showed faster expansions in both manufacturing and non-manufacturing businesses in October 2019 as production level and new business indices grew faster.

According to the survey, the manufacturing composite PMI expanded faster to 58.2 index points in October (from 57.7 in September), the fourteenth consecutive expansion.

Specifically, the growth in manufacturing composite PMI was due to faster expansion in production level index to 59.3 in October 2019 (from 58.5 in September 2019) as well as expansion in new orders – the index rose marginally to 57.9 in October 2019 (from 57.2 in September 2019).

Producers were equally favoured as suppliers of raw materials improved on delivery time of input materials despite increased production level – supplier delivery time index rose to 58.6 in October (from 58.4 in September).

Amid improvement at the suppliers’ end, raw materials/work-in-progress expanded faster, to 58.6 from 58.1 as the producers increased their quantity of raw materials purchased – quantity of purchases index expanded faster, to 53.7 from 50.7.

Producers were motivated to increase their outputs as margins improved – costs of production expanded slower (input price index fell to 58.4 from 58.8) while selling prices rose faster (output price index rose to 52.5 from 51.9).

Despite the increase in selling prices, we saw stock of finished goods decrease – its index expanded slower to 53.1 in October 2019 from 53.5 in September 2019 – as consumers absorbed the increased costs from the producers.

Number of new hires recorded by manufacturers increased in tandem with the higher production volume – the index for employment rose to 56.8 points in October 2019 (compared to 56.6 in September 2019).

Of the fourteen manufacturing sub-sectors surveyed, thirteen sub-sectors (or 92.86%) recorded faster expansions, better than flattish expansions across sub-sectors printed in September 2019.

Particularly, manufacturers of ‘Petroleum & coal products’, ‘Electrical equipment’, ‘Fabricated metal products’ and ‘Printing & related support activities’ registered the sharpest expansion in activities of 72.5 (from 62.50), 66.5 (from 54.0), 62.7 (from 57.7) and 61.8 (from 58.5) respectively.

Similarly, the non-manufacturing sector recorded growth as its composite PMI expanded faster to, 58.2 index points in October 2019 (from 58.0 index points in September 2019), the thirtieth consecutive expansion.

This was driven by faster expansion in business activity and incoming business to 57.9 (from 57.2) and 58.5 (from 58.4) respectively.

Business activity expanded despite average price of inputs which expanded faster to, 52.2 index points in October 2019 (51.9 index points in September 2019) and triggered the decline in inventory level to 45.1 (from 48.7).

On the flip side, employment expanded slower to 57.1 (from 58.0) despite the increase in incoming business. Of the seventeen manufacturing sub-sectors surveyed, six sub-sectors (or 35.29%) recorded faster expansions (higher than seven (41.18%) in the preceding month).

Notably, service providers of ‘Repair, Maintenance/Washing Of Motor Vehicles’, ‘Transportation & warehousing’ and ‘Real estate rental & leasing’ registered the sharpest expansion in activities of 68.1 (from 63.5), 64.0 (from 63.8) and 63.5 (from 51.8) respectively.

We feel that the faster expansion in PMI would be sustained as output is expected to increase in view of the end of year spending season with concomitant increase in cost of goods and services.

This should be amplified by the anticipated boost in consumer spending occassioned by the recent agreement between the Federal Government and the labour unions on the consequential salary adjustment for level 7 to 17 and its expected implementation before December 2019.

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