Private sector business conditions in Nigeria improved at an unparalleled rate in March, led by record growth in new orders, employment and stocks of purchases, according to Stanbic IBTC Bank Nigeria purchasers manager index (PMI) survey for the month.
The PMI, which is endorsed and adopted by the National Bureau of Statistics (NBS), indicated a purchasing managers’ index reading of 58.8 points, which is a signal of improved business conditions on the previous month figure of 56 points.
The banks PMI reading of 58.8 percent is, however, higher than the CBN reading of 56.7 index points released last week.
Both readings indicate expansion in the manufacturing sector as readings above 50.0 signal an improvement in business conditions while readings below 50.0 show deterioration.
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The bank’s conducted survey indicated that price pressures sharpened in March, with both input and output charge inflation registering above their respective long-run averages.
The March survey showed that panel respondents frequently noted an upturn in demand across the domestic market, whilst new export orders also returned to growth in the latest survey.
“In March, the Stanbic IBTC Bank PMI hit a new record. The reading rose to 58.8 from 56.0 in Feb and 53.0 in Mar 17 due to a combination of substantial increases in new orders and consequently a rise in output levels.
“The positive momentum was broad based as it also resulted in an increase in employment levels as that sub-index rose at a record pace to 56.1 from 54.0 in Feb and 50.1 a year ago,” Ayomide Mejabi, economist at Stanbic IBTC Bank said:
Mejabi said the rise in employment appeared to be in response to the increase in new orders, adding that the availability of FX coupled with declining inflation expectations would continue to support Nigeria’s economy.
“The output prices PMI corroborates our benign inflation outlook as it rose at a moderate pace, from 53.9 in Feb to 54.2 in March. We still expect headline inflation to moderate to the 13.0 percent handle by the end of the year, despite marginal upward pressure which the increase in excise duties on alcoholic beverages and tobacco will exert. This category accounts for only 1 percent of the inflation basket,” he said.
At 58.8, up from 56.0 in February, the PMI accelerated to a record high in March, signaling the fastest improvement in business conditions since the survey began in January 2014, according to Stanbic IBTC Nigeria in a statement, adding that the first quarter of 2018 indicated the strongest quarterly expansion on record.
It said inflow of new business received by private sector firms was a key component of the latest expansion.
“The rate of growth was unprecedented in March, with many firms reporting a strong upturn in domestic economic conditions. New order books have been improving continuously since the start of 2017.
Meanwhile, foreign demand returned to expansion in the latest survey,” it noted.
Reflecting the increase in output requirements, the PMI reflected that firms hired additional staff at a record pace in March more than what has been recorded in every month since May last year.
“Despite the increase in staff numbers, inflows of new orders outpaced output capacity, as indicated by a solid increase in backlogs of work in the latest survey.
In terms of inflation, average cost burdens increased at a historically elevated pace in March. The rate of input inflation was the fastest recorded for 49 months and was comprised of both rising staff costs and higher raw material prices,” the survey statement of findings read.
The bank equally noted that output charge inflation remained marked in the latest survey, although still well below the highs registered in 2016, adding that according to “anecdotal evidence, some firms increased selling prices to increase profit margins”.
The manufacturing purchasing managers’ index (PMI) is an indicator of the economic health of the manufacturing sector. It is a familiar data released at the start of the calendar month in developed markets such as the ISM’s in the US. It is based on the responses of manufacturers to set questions on core variables in their businesses.