In May, three different institutions published different Purchasing Manager’s Index (PMI) for Nigeria’s manufacturing industry.
The Central Bank of Nigeria reported May PMI as 56.5, FBNQuest reported May PMI as 49.5 and StanbicIBTC reported the PMI to be 59.1.
The conflicting PMI creates a big headache for economists, manufacturers, policymakers and other parties who rely on the PMI data to make strategic business and policy decisions as well as for economic forecasting.
According to the Central Bank of Nigeria (CBN), The Manufacturing PMI Report on businesses is based on survey responses, indicating the changes in the level of business activities in the current month compared with the preceding month.
A composite PMI above 50 points indicates that the manufacturing/non-
The key factor that caused the variation in the PMI published by these institutions was the difference in their methodologies.
While the general understanding of the concept of PMI is the same among these institutions, how it is calculated differs. Specifically, the differences lie in the components weightings and their sample size.
While FBNQuest assigns equal weightings to all 5 components in the PMI, CBN and Stanbic IBTC assign unequal weightings to the different components in the index to account for their uneven importance to output production.
For CBN, the composite PMI for the manufacturing sector is computed as the weighted average of five diffusion indices, namely: production level (25%), level of new orders (30%), suppliers’ delivery time (15%), employment level (10%) and raw materials inventory/work in progress (20%).
Stanbic IBTC methodology show that the PMI is a composite index based on five of the individual indexes with the following weights: New Orders (30%), Output (25%), Employment (20%), Suppliers’ Delivery Times (15%), and Stock of Items Purchased (10%), with the Delivery Times index inverted so that it moves in a comparable direction.
FBNQuest did not disclose the sample size for their analysis. FBNQuest indicated that their PMI reports cover a representative sample of the sector with large, medium-sized and small firms. They also included a disclaimer that any broad economic conclusions on the basis of their reports need to be tentative because they are operating in a near statistical void.
CBN stated that respondents for the survey were purchasing and supply executives of manufacturing and non-manufacturing organizations in just 31 locations in Nigeria.
Stanbic IBTC PMI score is based on data compiled from monthly replies to questionnaires sent to purchasing executives in approximately 400 private sector companies, which have been carefully selected to accurately represent the true structure of the Nigerian economy, including agriculture, mining, manufacturing, construction, retail and services.
While FBNQuest PMI data is used by some industry professionals, CBN depends on their own PMI data to make monetary policy decisions in the country. Stanbic IBTC PMI data is endorsed by National Bureau of Statistics and IHS Markit.
IHS Markit is a financial services company in United Kingdom that publishes global PMI reports. For May, it reported that Nigeria had the second highest PMI in the world behind only Netherlands.
The variation in the PMI reports will lead companies, analysts and policymakers who rely on the either of the three to make very different decisions. A safe bet will then be to average the three indices and rely on the averaged index to make strategic decisions.
