CBN: At 57.0 PMI, Manufacturing Sector Expanded in June

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• Says business confidence was stable in May

Kunle Aderinokun

The Central Bank of Nigeria has said the manufacturing sector expanded in the month of June.

The apex bank, which disclosed this in its Purchasing Managers’ Index (PMI) Survey Report for June 2018, obtained by THISDAY, pointed out that Manufacturing PMI in the review month stood at 57.0 index points.

According to the CBN, the index point of 57.0 for the manufacturing  in June indicated that the sector expanded for the 15th consecutive month.

The Manufacturing and Non-Manufacturing PMI Report on businesses is based on survey responses, indicating the changes in the level of business activities in the current month compared with the preceding month.

The June 2018 PMI survey was conducted by the Statistics Department of the Central Bank of Nigeria during the period June 8 – 19, 2018. The respondents were purchasing and supply executives of manufacturing and non-manufacturing organisations in 31 locations in Nigeria

A composite PMI above 50 points indicates that the manufacturing/non-manufacturing economy is generally expanding, 50 points indicates no change and below 50 points indicates that it is generally contracting. The subsectors reporting growth are listed in the order of highest to lowest growth, while those reporting contraction are listed in the order of the highest to the lowest contraction.

The CBN explained in the report  that, the Manufacturing PMI  grew at a faster rate when compared to the index in the previous month. “Of the 14 subsectors surveyed, 10 reported growth in the review month in the following order: paper products; furniture & related products; printing & related support activities; food, beverage & tobacco products; plastics & rubber products; electrical equipment; textile, apparel, leather & footwear; chemical & pharmaceutical products; petroleum & coal products and nonmetallic mineral products. The transportation equipment; fabricated metal products; primary metal; and cement subsectors declined in the review month.”

The CBN report further revealed that at 59.2 points, the production level index for the manufacturing sector grew for the sixteenth consecutive month in June 2018.  This also indicated a faster growth in the current month, when compared to its level in the preceding month. According  to the apex bank, 10 of the 14 manufacturing subsectors recorded increase in production level, 1 remained unchanged, while the remaining 3 recorded declines in production level during the review month.

Assessing the  employment, the CBN stated that the employment level index in June 2018 stood at 55.4 points, indicating growth in employment level for the 14th consecutive month. The PMI report  noted: “Of the 14 subsectors, 7 reported increased employment level, 4 remained unchanged while 3 reported reduced employment level in the review month.”

For the non-manufacturing PMI, the CBN noted that, the composite PMI for the nonmanufacturing sector stood at 57.5 points in June 2018, indicating expansion in the non-manufacturing PMI for the fourteenth consecutive month.

Pointing out that, “The index grew at a faster rate when compared to that in May 2018,” the apex bank said, “ Fourteen of the 17 subsectors recorded growth in the following order: repair, maintenance/ washing of motor vehicles; agriculture; information & communication; professional, scientific, & technical services; finance & insurance; utilities; water supply, sewage & waste management; health care & social assistance; real estate rental & leasing; electricity, gas, steam & air conditioning supply; wholesale/retail trade; construction; management of companies; and transportation & warehousing. The arts, entertainment & recreation subsector remained unchanged, while the accommodation & food services; and educational services subsectors recorded contraction in the review period.”

In terms of business activity, the CBN reported that at 59.1 points, the business activity index grew for the fifteenth consecutive month, indicating expansion in nonmanufacturing business activity in June 2018. “The index grew at a faster rate when compared to its level in the previous month. Twelve subsectors recorded growth in business activity, 3 remained unchanged while 2 declined in the review month.”

Another CBN report called the Monthly Business Expectations Survey (BES) Report for May 2018 put the business confidence index at 28.9 points, indicating respondents’ overall optimism on the economy and unchanged from April.

The May 2018 BES, which  was carried out from May 11-22, 2018, had a sample size of 650 businesses covering services, industry, wholesale/retail trade and construction. A response rate of 91.8per cent was achieved.

According to the report, the business climate is directly correlated to a country’s macroeconomic environment; this latest survey indicates that there is now a more stable macroeconomic outlook. Respondents saw the main business constraints as inadequate power supplies, the unfavourable economic climate and high interest rates.

The CBN explained that the optimism in May was driven by the opinion of respondents from the services (17.6 points) and industrial (9.2 points) sectors while those from the construction and wholesale/trade sectors represented just 1.2 and 0.9 points respectively of the total confidence index.

Analysts at FBNQuest Capital noted that  “the trade sector is probably the best barometer for economic activity across the country. Based on the national accounts for Q1 2018, it performed better than the previous quarter in that it contracted at a slower rate.”

“Despite the obvious easing of inflationary pressures, consumer demand remains soft, which helps to explain slow activity within the sector and by extension its low contribution to overall business confidence in May,” they pointed out.  

Continuing, the FBNQuest analysts said, “Although access to credit remains a challenge for businesses, respondents were more optimistic with regards to financial conditions. Given that banks do not have the luxury of FX gains and 20 per cent+ treasury bill yields to boost their earnings this year, the need to extend credit is likely to grow in the near to medium term. However, we doubt lending rates will decline from current levels (i.e. above 20per cent).”

The survey pointed towards a positive outlook for employment. The services, industrial and wholesale/retail sectors have the best prospects for job creation at 30.0, 23.6 and 18.2 points respectively. Additionally, the services and construction sectors indicate the greater disposition towards expansion.

FBNQuest Capital noted further, “As for inflation, the general expectation is for a slowdown in the headline rate for June. This is similar to our thinking. We expect the rate to slow to 10.8 per cent y/y, from 11.6 per cent in May.”

The survey also captured the outlook for business confidence in June. Based on data from respondents, the business confidence index is projected at 65.5 points.

According to the analysts, “business confidence is likely to remain positive. However, consumers remain cautious with their spending, resulting in soft demand. If consumption trends remain unfavourable, this could have an adverse effect on overall business confidence.”