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NIGERIA PMI - Headline readings diverge amidst contraction

• November’s Purchasing Managers’ Index (PMI) readings indicated economic contraction over the month as Manufacturing and Non-Manufacturing PMI registered 46.0 and 42.8 respectively. Digging deeper however, the two indexes diverged a bit as the Manufacturing PMI reading is the highest since January (47.2) whilst non-Manufacturing deteriorated more sharply compared to the change recorded in October. This implies that the non-manufacturing economy has now fared worse than the manufacturing economy for the 3rd successive month.
• The reduced contraction in the manufacturing economy was primarily driven by flatter declines in the major sub-Indices. Specifically, New Orders PMI registered 45.1 (highest since January: 46.2), Production Level PMI registered 46.9 (highest since May: 47.9), and Raw Materials PMI registered 46.1 (highest since March: 47.1). These three represent a combined weight of 75% of the Manufacturing PMI.
• The deterioration in Non-Manufacturing PMI can be traced to an acceleration in the slowdown in New Orders, Employment Levels and Inventories (Business Activity contracted at the same pace as in October). Meanwhile, just two out of eighteen sub-sectors expanded in November – Agriculture and Finance & Insurance. Notably, this was the first expansion in Finance & Insurance since January and indicates a relatively decent close to the year for a sector that already recorded 2.64% real GDP growth in the 3rd quarter of the year.
• Even after we factor in extra consumer spending during the festive season which usually supports aggregate demand, this year’s trend points toward another sub-50 reading in December as underlying economic fundamentals remain weak. The business climate is in a dire condition going into 2017 and fiscal support is needed to prop up the economy.