October data has shown a solid improvement in business conditions in Nigeria’s private sector with output, new orders and buying activity rising sharply. Staffing levels and inventories continued to rise – albeit at slower rates – while firms reduced their backlogs for the seventeenth month in a row.
However, panelists continued to report higher prices for materials and transportation with purchase costs rising at a record rate. Unfavourable exchange rate movements also exerted upward pressures on costs. Subsequently, confidence is moderated.
The headline figure derived from the survey is the Purchasing Managers’ Index (PMI). Readings above 50 signal, an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.
The headline PMI improved from 52.3 in September, to 54.1 in October, indicating a 16th successive monthly expansion.
Amid reports of improved market conditions and rising client requirements, new orders continued to expand. The rate of growth was robust, quickened from that seen in September and outpaced the long-run series average.
Consequently, firms raised their output levels at a marked and accelerated pace. Sector data indicated that all four sub-sectors saw faster increases in output. Manufacturers registered the steepest expansion, followed by wholesale and retail, services and agriculture.
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To support an eleventh monthly rise in output, firms raised their buying activity during the month. Purchases have now increased in each month since July, last year, with the latest uptick the second-fastest in the sequence of growth.
Meanwhile, backlogs fell substantially in October, with the pace of depletion amongst the quickest in the series. Firms reportedly had sufficient capacity to complete incoming new orders. Despite this, companies added to their headcounts, although the rate of growth was only modest.
Overall input prices rose substantially, which firms linked to unfavourable exchange rate movements as well as higher raw material, staff, and transportation costs. In fact, purchase cost inflation quickened to a fresh series high. Firms opted to pass on part of the burden to clients by lifting their selling charges, which they did so at the third-quickest rate in the series history.
Accelerating input costs led firms to protect against future price hikes by adding to their stockpiles. Concerns surrounding prices fed through to sentiment with confidence moderating in October and registering below the average for 2021 so far. Nevertheless, firms remained hopeful that greater investment will encourage output growth in the year ahead.