New data on the Purchasing Managers’ Index for Iran’s industrial sector show it plunged below the threshold to stand at a 23-month low.
PMI for the current fiscal year’s first month (March 21-April 20), settled at 37.02 from 56.43 in the preceding month (Feb. 20-March 20), indicating a 34.4% drop, according to the Statistics and Economic Analysis Center of Iran Chamber of Commerce, Industries, Mines and Agriculture.
Locally known by its Farsi acronym Shamekh, PMI is an indicator of the economic health of 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. A PMI above 50 represents an expansion compared with the previous month. A PMI reading under 50 represents a contraction and a reading of 50 indicates no change. The further away from 50, the greater the level of 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.
"Non-metallic mineral industries" posted the highest PMI with a reading of 49.69 while "clothing and leather" registered the lowest PMI of 25.56.
Notably, e “new orders" was the only sub-index registered below the 30 mark.
The report noted that in general the “new orders” sub-index fell drastically across a majority of industries that saw a jump in costs (workers’ wages, raw material prices and those of energy and transportation).
Business owners believe the steep rise in wages mandated by the government in the current fiscal year (started March 21) alongside a rise in other production costs, including a multifold increase in electricity charges, impose heavy costs on the final price of their products. Under the circumstances, many business owners will be forced to lay off their workers in the months to come.
Minimum wages will rise by 57.4% in the new Iranian year, Minister of Cooperatives, Labor and Social Welfare Hojjatollah Abdolmaleki said in March.
Five Main Sub-Indices
The "production" sub-index for Iran’s industrial sector increased from 51.5 in the 11th month of the fiscal 2021-22 (Jan. 21-Feb. 19) to 56.43 in the 12th month (Feb. 20-March 20) and declined to 37.02 in the first month.
"Non-metallic mineral industries" recorded the highest PMI of production sector (50) while "clothing and leather" registered the lowest PMI with a reading of 5.56.
The "new orders" sub-index grew from 48.83 in the month ending Feb. 19 to 59.92 in the month ending March 20 and decreased to 28.4 in the month ending April 20, with the top-performers being "non-metallic mineral industries" (50) and the worst being "textile industries” and “clothing and leather” (11.11).
The "supplier deliveries" sub-index, which measures how fast deliveries are made, increased from 59.84 in the month ending Feb. 19 to 65.14 in the month ending March 20 and grew to 47.39 in the month ending April 20.
The highest supplier deliveries PMI was posted by "non-metallic mineral industries" with a reading of 56.25 and the lowest was recorded for "others" with a reading of 20.
The "raw material inventory" sub-index increased from 48.86 in the month ending Feb. 19 to 51.6 in the month ending March 20 and declined to 38.98 in the month ending April 20.
"Chemical industry" posted the highest PMI with 48.04 while "others" registered the lowest PMI reading of 20 among all groups.
The PMI reading of "employment" sub-index declined below the threshold. It decreased from 51.75 in the month ending Feb. 19 to 46.61 in the month ending March 20 and declined to 48.44 in the month ending April 20.
Industries classified as "others" posted the highest PMI reading (60) whereas "rubber and plastic" posted the lowest PMI with 37.5.
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 material purchase prices" sub-index increased from 73.48 in the month ending Feb. 19 to 75.47 in the month ending March 20, but increased to 85.44 in the month ending April 20.
All 12 groups registered PMI readings higher than 50 for "raw material purchase price" sub-index in the first month of the current fiscal year. The highest PMI was recorded for "clothing and leather” with a reading of 100 and the lowest for "non-metallic mineral industries" with 56.25.
The "warehouse inventory" sub-index decreased from 53.8 in the month ending Feb. 19 to 42.51 in the month ending March 20, but grew to 42.51 in the month ending April 20.
The lowest PMI reading for "warehouse inventory" sub-index was recorded for “wood, paper and furniture" with 29.17 and the highest was registered for "rubber and plastic" with 75.
The "exports" sub-index increased from 51.86 in the month ending Feb. 19 to 53.02 in the month ending March 20 and declined to 42.95 in the month ending April 20.
PMI reading of "exports" sub-index was the highest for "rubber and plastic" and “others” (50), and lowest for "non-metallic mineral industries" (31.25).
The "prices of manufactured products" sub-index increased from 49.53 in the month ending Feb. 19 to 58.37 in the month ending March 20 and grew to 70.97 in the month ending April 20.
"Petroleum and gas products" recorded the highest PMI of 88.89 during the period while "non-metallic mineral industries” posted the lowest PMI of 56.25.
The "fuel consumption" sub-index decreased from 57.53 in the month ending Feb. 19 to 53.05 in the month ending March 20 and declined to 37.43 in the month ending April 20.
Industries categorized as "rubber and plastic" registered the highest PMI measured for "fuel consumption" (50) while “clothing and leather" registered the lowest (22.22).
The "sales" sub-index increased from 46.43 in the 11th month of fiscal 2021-22 to 59.69 in the 12th month and declined to 25.12 in the first month of fiscal 2022-23.
“Food industry” posted the highest sales PMI with a reading of 82.14 while “clothing and leather” registered the lowest PMI each with a reading of 5.56.
The "production forecasts for the following month" sub-index decreased from 61.41 in the month ending Feb. 19 to 32.8 in the month ending March 20 and increased to 74.01 in the month ending April 20. Its sub-index "non-metallic mineral industries" registered the highest PMI reading of 93.75 and "rubber and plastic" the lowest PMI reading of 56.25.
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.
