‘Huge inventory of unsold products, slow consumer demand affecting PMIs’

Central Bank of Nigeria

Local manufacturers have explained the contradiction in Purchasing Managers’ Index (PMI) data released by the Central Bank of Nigeria’s Purchasing Managers’ Index (PMI) and that of FBN Quest, the research arm of FBN Holdings Plc, as one reflecting the rising level of inventory of locally manufactured goods and low consumer purchasing power.

According the manufacturers, composite PMI for the manufacturing sector is computed as the weighted average of five diffusion indices: production level, level of new orders, suppliers’ delivery time, employment level and raw materials inventory/work in progress.

They noted that while the indices reflect the level of procurements done during a month under review, the indices do not capture other activities like sales, operations and purchasing power of consumers, all of which are likely to affect the purchases in the months to follow.

A report released by FBN Quest, the research arm of FBN Holdings Plc, had revealed that its manufacturing Purchasing Managers’ Index (PMI), the first in Nigeria, eased in November to 60.1 index points from 64.8 index points.

This figure was in contrast to the manufacturing PMI of the Central Bank of Nigeria (CBN) released earlier, stating that an eighth consecutive growth to 55.9 points in November.

In a chat with The Guardian, the President of the Manufacturers Association of Nigeria (MAN), Dr. Frank Jacobs said at this particular time, manufacturers have stocked raw materials to produce for end of the year but the November figures, cumulating in all the purchases that have been made in anticipation for the end of the year, have not really resulted into production.

“But we are looking at two different indices and that is why we cannot expect the two to be the same. For many companies, the peak of sales is during the end of the year and it really depends on funds available to the people as well as money in circulation. People are really impoverished in this country today. So, I am not even sure they have that disposable income to buy.

So, things are not really going on very well because the income is not there and that is why most companies are complaining of high inventory”, he added.

In its daily Good Morning Nigeria report, FBN Quest noted that its partner, NOI Polls, gathered and compiled the data and the index was found in developed markets (such as the ISM’s in the US), larger emerging markets such as China and a few other frontiers.

According to FBN, the data obtained is based upon manufacturers’ responses to set questions on core variables in their businesses. In line with best practice, we are releasing our report on the first working day of the month.

“In the unweighted model of our choice (the ISM’s), respondents are asked whether output, employment, new orders, suppliers’ delivery times and stocks of purchases have improved on the previous month, are unchanged or have declined.

“A headline reading of 50 is neutral. We have posted nine negative readings since our launch in April 2013, the latest in January this year.

“Our sample is an accurate blend of large, medium-sized and small companies.

“We have added ‘trigger’ questions, which apply when the respondent has the same answer on a sub-index for two months and then changes it for the third.

“All five sub-indices fell in November: the lowest was 53.5 (employment). This was a reality check. The headline reading has been above 50 since March.

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