PMI Report Points to Business Downtrend

EghtesadOnline: The latest industrial purchasing managers’ index (PMI) surveys indicate that the Iranian economy relapsed to stagnation in the month ending June 21, despite a flurry of activity in many sectors during the previous month.

News ID: ۷۴۷۸۲۶

10 July 2019

The findings were released by the Statistics and Economic Analysis Center of the Iran Chamber of Commerce, Industries, Mines and Agriculture.

PMI for the third month of the current fiscal year (May 22-June 21) stood at 50.66, down from 61.39 in the preceding month (April 21-May 21), indicating a 10.73-point or 17.47% decline month-on-month.

It is nine months now that the Statistical Center of ICCIMA measures PMI in Iran, under the Farsi acronym “Shamekh”, according to Financial Tribune.

PMI is an indicator of economic health for manufacturing and services sectors. It aims to provide information about current business conditions to company decision-makers, analysts and purchasing managers.

The headline PMI ranges from 0 to 100, such that over 50 represent an expansion when compared with the previous month. A PMI reading under 50 indicates a contraction and a reading of 50 implies no change.

PMI is based on a monthly survey sent to senior executives of more than 400 companies. It is based on five major survey areas: new orders with the importance weight of 30%, raw material inventory levels (10%), production (25%), supplier deliveries (15%) and employment (20%).

The surveys include 12 questions about business conditions and any changes, whether it is improving, showing no change or deteriorating.

At present, ICCIMA publishes reports only on Iran’s industrial sector and its 12 subset fields. It plans to survey the services and agriculture sectors in the near future.

“Machinery and home appliances” group posted the highest PMI with a reading of 57.6 during the month under review while "textile" registered the lowest PMI reading with 41.1.

Five Main Indices

The "production" sub-index for Iran’s industrial sector jumped from 23.88 in the first month of the current Iranian year (ended April 20) to 69.97 in the following month, but fell to 50.20 in the third Iranian month.

“Oil, natural gas and refineries” recorded the lowest PMI of “production” sub-index last month (34.6) while “machinery and home appliances” group had the highest PMI with a reading of 59.1.

The "new orders" sub-index fell to 47.94 in the third month from 66.31 of the month before with the top performing category for the third fiscal month being “vehicle and auto parts manufacturing” (66.1).

The “supplier deliveries” sub-index, which measures how fast deliveries are made, increased from 47.17 to 60.25, before decreasing to 58.69 in the third month of the Iranian year.

The highest “supplier deliveries” PMI was posted by “plastic and rubber production” with a reading of 66.7 and the lowest was recorded for “textile industries” with a reading of 39.3.

The "raw materials inventory levels" sub-index slipped from 43.05 in the month ending May 21 to 42.36 in the month ending June 21. Nine out of 12 industries posted PMI readings below 50 in the third month of the current Iranian year. “Textile industries” registered the lowest PMI (28.6) among all groups.

The PMI reading of “employment” sub-index edged above 50 last month: it increased from 53.30 in the second fiscal month to 53.43 in the third fiscal month. “Machinery and home appliances” registered the highest PMI (63.6) whereas “other industries” posted the lowest PMI (41.7).

Seven Secondary Criteria

To calculate PMI, seven secondary criteria were also surveyed by the center, namely raw materials purchase prices, warehouse inventory level, exports, prices of products, fuel consumption, sales level and production expectations.

The “raw materials purchase prices” sub-index decreased from 89.45 to 75.97 in the month ending June 21.

All industries registered PMI readings of higher than 50 in the third fiscal month, suggesting that the prices of raw materials needed by all industries increased.

Raw materials’ purchase price index of “non-metallic minerals industries” was the highest of all industries (88.6) and those of “machinery and home appliances” was the lowest (65.2) during the month.

The “warehouse inventory level” sub-index rose from 49.48 in the month ending May 21 to 51.89 in the month ending June 21. The lowest PMI sub-index was recorded for “wood, paper and furniture” group (41.3).

The “exports” sub-index increased from 37.88 to 48.10, but slid to 46.84.

The decline in exports of “oil, natural gas and refineries” was the most significant among all groups in the third fiscal month, such that the industry’s “exports” sub-index stood at 36.5. “Metal industries” posted the highest exports PMI (53.3) in the month ending June 21.

The “prices of manufactured products” sub-index increased from 69.95 to 72.63, before dropping to 60.11 in the third fiscal month.

Of the 12 industries, “textile industries” recorded the highest PMI of 71.4 during the third month of the Iranian year.

The “fuel consumption” sub-index rose from 33.72 to 65.95, but fell to 58.74 in the following month.

“Other industries” registered the highest PMI (83.3) whereas “oil, natural gas and refineries” posted the lowest PMI (40.4), suggesting that the latter group had the lowest fuel consumption by June 21.

The “sales level” sub-index climbed from 24.74 to 66.85, but fell to 47.36 in the third fiscal month.

The “vehicle and auto parts manufacturing” group posted the highest PMI with 54.8 while “textile industries” recorded the lowest PMI reading of 35.7.

The “production expectations for the next month” sub-index dropped from 59.43 in the month ending May 21 to 56.84 in the month ending June 21.

Among the 12 groups, “non-metallic minerals industries” registered the highest PMI of 65.9 in the third fiscal month while “textile industries” recorded the lowest PMI of 39.3.

The overall PMI index for industries improved from 36.38 to 61.39, but slid to 50.66 in the month ending June 21.

PMI, among the most precise indicators showcasing a country’s economic condition, was first devised by the Institute for Supply Management in the US in 1948.

It is calculated as (P1 * 1) + (P2 * 0.5) + (P3 * 0) where P1 is a percentage of answers reporting an improvement, P2 is a percentage of answers reporting no change and P3 is a percentage of answers reporting a deterioration.