Decline In Consumer Purchasing Power Pushes PMI Lower

The Purchasing Managers Index (PMI) plunged to an 18-month low as a result of the sharp decline in consumer purchasing power, Bismarck Rewane, Chief Executive Officer of Financial Derivatives Company has said.
FBN PMI plunged to an 18-month low of 48.9 points from 49.8 points in the preceding month. This marks the third negative reading in 2018 and a contraction of the manufacturing sector.
According to the FBN report, all five variables declined with three (output, employment and stocks of purchases) below the 50 threshold. The manufacturing sector remains uncertain of future demand and has thus adopted a wait and sees approach.
The decline was primarily due to weak consumer demand and high carrying costs, despite the availability of forex through the IEFX window introduced by the CBN. In addition, the rainy season, poor electricity supply, high rates of import duty on raw materials and stiff competition from imported goods from China suppressed growth.
Similarly, the CBN PMI declined to 56.8points from 57.0 points in June. Contrary to the FBN report, the CBN PMI signifies an expansion in the manufacturing sector for the 16th consecutive month. The decline was as a result of the slowdown in four variables- production level, new orders, raw material inventories and employment. On the contrary, 13 out of 14 sub-sectors surveyed grew with the exception of plastic and rubber products.
The decline in PMI was mainly due to a decline in consumer demand which adversely affected inventory build- up of manufacturers. Furthermore, high carrying costs have reduced manufacturers’ appetite for holding stock. We expect the PMI figures to contract further in July due to increased excise duties on alcoholic beverages and tobacco, power constraints and increased forex demand. Furthermore, if the external reserves depletion persists the CBN’s ability to support the forex market could be affected. This is detrimental to manufacturing activities and could increase import and operating costs through a weaker exchange rate.
15 out of the 169 listed companies on the NSE are FMCG companies and constituted approximately 26 per cent of total market capitalization in July (N13.41trn). The consumer goods index comprises of the most capitalized and liquid companies in the food, beverage and tobacco industry. This provides a benchmark to measure the performance of FMCG companies.
In July, the consumer goods sector lost 5.08 per cent to 880.62pts from 927.72pts recorded in the preceding month. This was as a result of losses recorded by PZ Cussons (27 per cent), Honeywell Flour Mills (23 per cent) and Cadbury Nigeria Plc (18 per cent). Year-to-date (YTD), the sub-index lost 9.78 per cent.

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