Industrial PMI Plunges to Record Low

EghtesadOnline: The novel coronavirus led to further deterioration of Iranian industries in the month ending April 19.

News ID: ۷۵۰۰۳۱

13 May 2020

The Purchasing Managers' Index for the first month of current fiscal year (March 20-April 19) plummeted to a record low of 28.06 from 42.48 in the preceding month (Feb. 20-March 19), indicating a 14.42-point or 33.94% decrease month-on-month, according to the Statistics and Economic Analysis Center of Iran Chamber of Commerce, Industries, Mines and Agriculture's latest report.

The index stood at 56.14 in the month ending Feb. 19.

The center has been measuring PMI, known by its Farsi acronym Shamekh, in Iran for the past 19 months.

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

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 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 (10%), production (25%), supplier deliveries (15%) and employment (20%).

The survey poses 12 questions about business conditions and any changes, whether it is improving, no changes or deteriorating.

Food industries posted the highest PMI with a reading of 39.4 during the month under review while textile industries registered the lowest PMI reading with 11.3. In fact, all 12 groups posted a PMI reading of below 50.

Five Main Sub-Indices

The "production" sub-index for Iran’s industrial sector decreased from 55.35 in the 11th fiscal month (Jan. 21-Feb. 19) to 39.09 in the 12th fiscal month (Feb. 20-March 19) of the last Iranian year to 20.37 of the first month of the current Iranian year (March 20-April 19).

"Textile industries" recorded the lowest PMI of the production sub-index last month (0.0) while food industries registered the highest PMI with a reading of 34.2.

The "new orders" sub-index tumbled from 60.12 in the month ending Feb. 19, to 41.43 in the month leading to March 19 to 22.03 in the month ending April 19, with the top performing industries being non-metallic mineral industries (40).

The "supplier deliveries" sub-index, which measures how fast deliveries are made, dropped from 62.15 in the month ending Feb. 19 to 50.54 in the month ending March 19 to 30.19 in the month ending April 19.

The highest “supplier deliveries" PMI was posted by food industries with a reading of 46.1 and the lowest was recorded for “clothing and leather” with a reading of 10.

The "raw material inventory" sub-index declined from 42.39 in the month ending Feb. 19 to 41.01 in the month ending March 19 to 32.83 in the month ending April 19.

The sub-index for non-metallic mineral industries registered the lowest PMI (20) among all groups while gas and petroleum products posted the highest PMI (44.1).

The PMI reading of "employment" sub-index also fell below the threshold last month. It fell from 53.54 in the month ending Feb. 19 to 43.02 in the month ending March 19 to 42.72 in the month ending April 19.

The sub-index for chemical industries registered the highest PMI reading (52.1) whereas “textile industries” posted the lowest PMI (23.3).

Seven Secondary Criteria

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

The "raw materials purchase prices" sub-index decreased from 85.06 in the month ending Feb. 19 to 75.99 in the month ending March 19 to 70.95 in the month ending April 19.

Nine groups registered PMI readings of higher than 50 for "raw material purchase price" sub-index in the first fiscal month: The highest PMI was recorded for food industries with a reading of 85.5.

The "warehouse inventory" sub-index fell from 45.14 in the month ending Feb. 19 to 44.43 in the month ending March 19 to 42.87 in the month ending April 19.

The lowest PMI for this sub-index was recorded for machinery and home appliances (29) and the highest was registered for rubber and plastic industries with 68.2.

The "exports" sub-index sank from 47.78 in the month ending Feb. 19 to 39 in the month ending March 19 to 32.31 in the month ending April 19.

PMI reading of "exports" sub-index was the lowest for gas and petroleum products (14.7) and highest for wood, paper and furniture (47.1).

The "prices of manufactured products" sub-index decreased from 58.54 in the month ending Feb. 19 to 55.32 in the month ending March 19 to 49.87 in the month ending April 19.

For this sub-index, vehicle and auto parts manufacturing recorded the highest PMI of 60.4 during the first month of the Iranian year while gas and petroleum products posted the lowest PMI reading of 26.5.

The "fuel consumption" sub-index dropped from 59.49 in the month ending Feb. 19 to 42.83 in the month leading to March 19 to 30.36 in the month ending April 19.

For this sub-index, food industries registered the highest PMI measured for fuel consumption last month (42.1) and textile industries registered the lowest (3.3).

The "sales" sub-index declined from 57.80 in the 11th fiscal month to 40.96 in the 12th fiscal month of last year to 18.28 in the first month of the current year.

Here, non-metallic mineral industries posted the highest PMI with a reading of 33.3 and “other industries” and textile industries registered the lowest PMI with a reading of 0.

The "production forecasts” sub-index plummeted from 53.38 in the month ending Feb. 19 to 27.52 in the month ending March 19 but improved to 69.11 in the month ending April 19.

For this sub-index, all 12 groups reported PMI reading above 50 for production forecasts with machinery and home appliances registering the highest PMI reading of 80.6 and gas and petroleum products the lowest PMI reading of 50.

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