The Purchasing Managers' Index for Iran’s economy has declined for the third consecutive month to break below the 50-mark threshold.
The latest survey of the Statistics and Economic Analysis Center of Iran Chamber of Commerce, Industries, Mines and Agriculture — the sponsor and coordinator of PMI reports in Iran — shows the index (known by its Farsi acronym Shamekh) settled at 48.06 in the fifth month of the current Iranian year (July 23-Aug. 22), down from 50.10 registered in the previous month, indicating a 2.04-point or 4.07% decline.
PMI indicates the prevailing direction of economic trends in the manufacturing and service sectors. The headline PMI is a number from 0 to 100, such that over 50 indicates an economic expansion compared with the previous month. A PMI reading under 50 indicates contraction and a reading of 50 implies no change.
It is an index of the prevailing direction of a country’s economic trends, which provides information about business conditions to decision makers, investors, analysts and purchasing managers.
“As in previous years, businesses faced a slump in activities during the summer holidays coinciding with Mordad [the fifth month of the Iranian year]. This year round, however, the slump has been exacerbated by a severe decline in demand and purchasing power of their customers, as well as electricity and internet cutoffs, which especially hit the services sector. Many companies have faced high customs costs. Despite a manifold increase in production cost, because of the sharp decline in demand and shortage of financial resources, firms have had to sell their products with minimal profit margins,” the report said.
PMI Sub-Indexes
The ICCIMA survey has five main indices to calculate the overall PMI.
According to the report, the “business output” sub-index decreased from 59.5 in the third month of the current fiscal year (May 22-June 21) to 50.82 in the fourth month (June 22-July 22) and declined to 47.37 in the fifth month (July 23-Aug. 22).
The “new orders” sub-index decreased from 51.9 in the third fiscal month to 47.14 in the fourth month and further to 42.33 in the fifth month to hit a 13-month low.
The “supplier deliveries” sub-index, which measures how fast deliveries are made, decreased from 60.21 in the month ending June 21 to 56.22 in the month ending July 22 and to 51.01 in the month ending Aug. 22.
The “raw materials inventory” sub-index declined from 47.72 in the month ending June 21 to 45.91 in the month ending July 22 and 44.38 in the month ending Aug. 22.
The PMI reading of “employment” sub-index decreased from 52.41 in the month ending June 21 to 51.17 in the month ending July 22, but increased to 57.16 in the month ending Aug. 22.
To calculate PMI, seven secondary criteria are 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 declined from 86.70 in the month ending June 21 to 74.36 in the month ending July 22 and decreased further to 67.97 in the month ending Aug. 22.
The “warehouse inventory” sub-index increased from 53.42 in the month ending June 21 to 57.1 in the month ending July 22, but declined to 55.47 in the month ending Aug. 22.
The “exports” sub-index decreased from 50.01 in the third fiscal month to 46.96 in the fourth month but grew to 48.26 in the fifth month.
The “prices of manufactured products or services” sub-index decreased from 62.89 in the month ending June 21 to 62.27 in the month ending July 22 and to 51.96 in the month ending Aug. 22 — a 28-month low.
The “fuel consumption” sub-index decreased from 61.84 in the month ending June 21 to 56.53 in the month ending July 22, but grew to 56.82 in the month ending Aug. 22.
The “sales” sub-index declined from 58.08 in the month ending June 21 to 46.32 in the month ending July 22, but increased to 50.35 in the month ending Aug. 22.
The sub-index of “business output expectations for the following month” decreased from 50.54 in the month ending June 21 to 50.18 in the month ending July 22, but increased to 63.72 in the month ending Aug. 22.
The overall PMI decreased from 54.73 in the month ending June 21 to 50.1 in the month ending July 22 and to 48.06 in the month ending Aug. 22.
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.
