Iran's PMI Declines Below 50

EghtesadOnline: PMI for the fifth month of the current fiscal year (July 23-Aug. 22) settled at 45.79 from 50.07 in the preceding month (June 22-July 22), indicating a 4.28-point or 8.54% decline month-on-month.

News ID: ۷۴۸۴۰۳

11 September 2019

The disappointing purchasing managers’ index (PMI) of the fifth fiscal month signals an increased risk of slowdown in Iran’s economy.

The Statistics and Economic Analysis Center of the Iran Chamber of Commerce, Industries, Mines and Agriculture that publishes the local version of PMI also notes that summer factory closures in some industries have also contributed to the decline in the index last month.

It is 11 months now that the center is measuring PMI in Iran, under the Farsi acronym “Shamekh”. 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, Financial Tribune reported.

The headline PMI is a number from 0 to 100, such that over 50 represents 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 (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, no changes or deteriorating.

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

“Plastic and rubber production” posted the highest PMI with a reading of 56.3 during the month under review while "wood, paper and furniture" registered the lowest PMI reading with 35.9.

Five Main Sub-Indices

The "production" sub-index for Iran’s industrial sector fell from 50.20 in the third month of the current Iranian year (ended June 21) to 48.67 in the following and then to 43.38 in the fifth Iranian month.

“Wood, paper and furniture” recorded the lowest PMI of the “production” sub-index last month (26.3) while “non-metallic minerals industries” had the highest PMI with a reading of 54.2.

The “new orders” sub-index dipped to 39.60 in the fifth month from 45.03 in the previous month with the top performing industry for the fifth fiscal month being “plastic and rubber production” (50).

The “supplier deliveries” sub-index, which measures how fast deliveries are made, increased from 58.69 in the third Iranian month to 59.39 in the fourth month, before falling to 55.79 in the fifth month of the Iranian year.

The highest “supplier deliveries” PMI was posted by “plastic and rubber production” with a reading of 70.6 and the lowest was recorded for “textile industries” with a reading of 34.6.

The "raw materials inventory levels" sub-index increased from 42.36 in the month ending June 21 to 45.80 in the month ending July 22, before dropping to 43.62 in the month ending Aug. 22.

Eight out of 12 industries posted PMI readings below 50 in the fifth month of the current Iranian year. Industries included in “other groups” registered the lowest PMI (21.4) among all groups.

The PMI reading of “employment” sub-index stuck above the threshold level last month: It increased from 53.43 in the third fiscal month to 54.53 in the fourth fiscal month but fell to 51.69 in the fifth month. “Plastic and rubber production” registered the highest PMI (67.6) whereas “wood, paper and furniture” posted the lowest PMI (44.7).

Seven Secondary Criteria

To calculate PMI, seven secondary criteria were also surveyed by the center, namely raw material purchase prices, warehouse inventory, exports, product price, fuel consumption, sales and production expectations.

The “raw materials purchase prices” sub-index decreased from 75.97 in the month ending June 21 to 60.46 in the month ending July 22 to 52.55 last month.

Six industries registered PMI readings of higher than 50 for raw materials’ purchase price index in the fifth fiscal month and the highest PMI was recorded for “non-metallic minerals industries” with a reading of 64.6.

The “warehouse inventory level” sub-index rose from 51.89 in the month ending June 21 to 54.36 in the month ending July 22 to 56.92 last month. The lowest PMI sub-index was recorded for “oil and gas products industries” (36.2) and the highest was registered for “textile industries” with 69.2.

The “exports” sub-index decreased from 46.84 in the month ending June 21 to 46.41 in the month ending July 22 to 44.65 last month.

All 12 categories registered PMI readings of the threshold 50 or below during the month under review, except for “plastic and rubber production” (52.9). PMI reading of exports sub-index was the lowest for “oil and gas products industries” (29.3).

The “prices of manufactured products” sub-index decreased from 60.11 to 50.07 to 38.35 in the fifth fiscal month. “Textile industries” recorded the lowest PMI of 19.2 during the fifth month of the Iranian year.

The “fuel consumption” sub-index slid from 58.74 in the third month to 54.96 in the month ending July 22 to 48.57 last month.

“Plastic and rubber production” registered the highest PMI (55.9) whereas “clothing and leather” posted the lowest PMI (36.7), indicating that the latter group had the lowest fuel consumption by Aug. 22.

The “sales level” sub-index dropped from 47.36 in the third month to 43.45 in the fourth to 37.85 last month. All industries recorded PMI readings below 50. The “machinery and home appliances” posted the highest PMI with 48.5 while “textile industries” recorded the lowest PMI reading of 15.4.

The “production forecasts for the next month” sub-index increased from 56.84 in the month ending June 21 to 58.06 in the month ending July 22 to 62.16 last month. This could indicate optimism about the prospects of domestic production in the current month.

Among the 12 groups, “vehicle and auto parts manufacturing” registered the highest PMI of 73.5 in the fifth fiscal month while industries categorized within “other groups” recorded the lowest PMI of 42.9.

The overall PMI for industries fell from 50.66 in the month ending June 21 to 50.07 in the month ending July 22 to 45.79 last month.

PMI, among the most precise indicators showcasing a country’s economic condition, was first devised by the Institute for Supply Management in USA in 1948. It is calculated as (P1 * 1) + (P2 * 0.5) + (P3 * 0) where P1 is percentage of answers reporting an improvement, P2 is percentage of answers reporting no change and P3 is percentage of answers reporting a deterioration.