PMI Report: Manufacturing Sector Failed to Expand Output in September as Inflation Bites Hard on Businesses

Dike Onwuamaeze

The Purchasing Managers’ Index (PMI) report of the Stanbic IBTC Bank Nigeria in September 2023 showed that the manufacturing sector failed to record output expansion and was at the receiving end of inflationary pressure during the month under review.

The Head of Equity Research West Africa at Stanbic IBTC Bank, Mr. Muyiwa Oni, who commented on the report, said: “Three of the four monitored sectors saw output expand, the exception being manufacturing.”    

The report said headline PMI posted 51.1 in September, up from 50.2 in August but still only just above the 50.0 no-change mark. As such, the index signaled a slight monthly improvement in business conditions.

According to the report, “Output in the Nigerian private sector returned to growth in September, following a slight reduction in August. The pace of expansion was only modest, however, and softer than the series average. Anecdotal evidence indicated that although there had been some signs of an improvement in sales during the month, overall demand remained weak. Activity rose in three of the four monitored sectors, the exception being manufacturing.”

It added: “Overall input costs continued to increase rapidly during September, with the rate of inflation only marginally softer than the previous month’s survey record. Input prices rose sharply across the four broad sectors covered, with inflationary pressures most pronounced in wholesale and retail and manufacturing.”

The PMI also reported increasing impact of inflation on businesses during the period under review. According to the report, strong cost pressures meant that firms operating in the Nigerian private sector remained under pressure in September as   input prices increased at one of the sharpest rates on record, largely due to exchange rate weakness and higher fuel costs.

Oni said: “Sharp rises in prices were a key factor limiting demand in the private sector at the end of the third quarter. Overall input costs rose at a pace that was only marginally weaker than August’s survey record.”

The report added, “the rate of purchase cost inflation remained elevated in September, coming in only slightly softer than that seen in August. More than 56 per cent of respondents signaled a rise in purchase prices, which they mainly linked to exchange rate weakness and higher fuel costs.

“Substantial increases in purchase costs meant that companies continued to increase their own selling prices at a rapid pace at the end of the third quarter. Although remaining elevated, the pace at which charges increased slowed from August and was the softest since May.”

However, the report said that new business increased for the sixth month running in September as a modest rate when compared to the growth recorded in August.

The report noted that, “customer demand reportedly picked up over the month, but remained fragile as a number of customers were deterred by higher prices. Nigerian companies posted a rise in new export orders during September, thereby extending the current sequence of growth to three months.

“Moreover, the rate of expansion quickened to the fastest in just over a year-and-a-half. The modest pick-up in new business during September meant that companies continued to increase their employment at the end of the third quarter. Staffing levels have now risen in five consecutive months.

“The pace of job creation was slight, but quicker than seen in August. The overall increase in workforce numbers was centred on the agriculture and services sectors.”