The Central Bank of Nigeria (CBN) recently released the Purchasing Managers’ Index Report for April, with data showing an upturn in manufacturing activity in the first month of the new quarter. Buoyed by knock-on effects of the significant improvement in fiscal balance and the FX market – particularly related to FX liquidity – April manufacturing PMI expanded to 51.1 points (relative to 47.7 points in March 2017) after three consecutive months of contraction, settling in the positive region for the first time in 2017. The major drivers of the expansion in Composite PMI were Production Level (58.5 points), New Orders (50.1 points), and Inventories (50.6 points) sub-indices which grew 7.7ppts, 4.5ppts and 1.5ppts M-o-M respectively to more than offset sustained contraction in Employment level and relapse in Supplier Delivery Time which posted an increase in March.
The effect of the improvement in business sentiment was evident in the performance of the following sub-sectors of the Manufacturing sector; Appliances & Components (63.4 relative to 55.4 in March), Food, Beverage & Tobacco Products (55.9 relative to 51.9 in March), Textile, Apparel, Leather & Footwear (54.1 relative to 46.3 in March), Chemical & Pharmaceutical Products (53.1 relative to 41.8 in March), Cement (52.1 relative to 44.1 in March), Nonmetallic Mineral Products (52.1 relative to 49.1 in March), Printing & Related Support Activities (51.2 relative to 41.0 in March), Furniture & Related Products (51.0 relative to 43.3 in March), Electrical Equipment (51.0 relative to 38.9 in March), and Plastics & Rubber Products (50.6 relative to 45.5 in March) as they all expanded in the month.
On the other hand, the Non-manufacturing PMI contracted for the 16th consecutive month in April, albeit at a slower pace, with the index reading 49.5 in April relative to 47.1 recorded in March. Nonetheless, there are indications that growth could accelerate in the coming month as Business Activity (53.3 points) as well as New Orders (50.5 points) posted an expansion, with the major drags to the Composite Index coming from Level of Employment (45.5 points) and Inventories (48.6 points). Also, only eight out of the eighteen manufacturing sub-sectors recorded declines in April with 10 increasing.
Whilst we believe that the improvements recorded in the Manufacturing and Non-Manufacturing sectors reaffirms the fact that the economy is on the path to recovery in the Second Quarter, as other macroeconomic indicators also suggest, the decline in the Employment sub-index of the Manufacturing and Non-Manufacturing sectors remains a concern. This could suggest business owners are still utilizing existing underutilized labor or remain uncertain of future economic condition. May PMI data will give more clarity on that but in the interim, we are positive on short term economic condition on the back of 1) rebound in cyclical anchors of the business cycle – oil production and prices, 2) improvement in FX liquidity and 3) increase in fiscal revenue and recent actions taken to ease condition of doing business for SMEs.