The Purchasing Managers' Index for Iran’s overall economy has declined to touch the threshold, overshadowed by diminishing purchasing power, recent unrest and internet outage.
The latest survey of businesses by 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 settled at 50.19 in the seventh month of the current Iranian year (Sept. 23-Oct. 22) from 52.08 registered in the previous month, indicating a 1.89-point or 3.62% decrease.
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, aiming to provide information about business conditions to company directors, analysts and purchasing managers.
“Companies are facing a sharp fall in demand and sales as a result of the declining purchasing power of customers, recent events [read unrest] in the country and the fact that the services sector has been grappling with internet outage. Many businesses are facing difficulties in supplying their raw materials and inputs due to the severe shortage of financial resources and instability in foreign exchange rates,” the ICCIMA report says.
According to the latest statistics by NetBlocks, a watchdog organization that monitors cybersecurity and the governance of internet, the damage inflicted on Iran’s economy at this particular time (nationwide internet shutdown in response to protests) is estimated to stand at $1.5 million per hour. The Research Department of the Iranian National Tax Administration has put the losses at 10,800 billion rials [around $30 million] per day.
“Forty million Iranians were active on Instagram. According to the reports of the Statistical Center of Iran, up to 10 million out of 11 million online businesses use Instagram, either directly or indirectly. Many of them are home-based and traditional businesses and those active in the services sector. They use Instagram to promote their business and sell their products,” Mohammad Mehdi Mazrouei, an economic expert, wrote for the Persian daily Shargh recently.
“In a statement, the Iranian e-commerce association warned that 400,000 businesses are now on the brink of collapse as a result of the internet outage. The income of 10 million Iranians depends on the internet and this platform [Instagram]; the livelihoods of these people are on the line. Given that Iran’s economic growth has been close to zero in the past decade, such an ill-advised action is not only irreparable, but would give rise to a disaster.”
PMI Sub-Indexes
The ICCIMA survey has five main indices to calculate the overall PMI.
According to the report, the “business output” sub-index increased from 47.37 in the fifth month of the current fiscal year (July 23-Aug. 22) to 52.34 in the sixth fiscal month (Aug. 23-Sept. 22), but decreased to 51.60 in the seventh fiscal month (Sept. 23-Oct. 22).
The “new orders” sub-index increased from 42.33 in the fifth fiscal month to 52.87 in the sixth month, but declined to 46.82 in the seventh month.
The “supplier deliveries” sub-index, which measures how fast deliveries are made, increased from 51.01 in the month ending Aug. 22 to 54.05 in the month ending Sept. 22 and 54.78 in the month ending Oct. 22.
The “raw materials inventory” sub-index increased from 44.38 in the month ending Aug. 22 to 45.22 in the month ending Sept. 22 and 46.28 in the month ending Oct. 22.
The PMI reading of “employment” sub-index decreased from 57.16 in the month ending Aug. 22 to 52.53 in the month ending Sept. 22 and 52 in the month ending Oct. 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 increased from 67.97 in the month ending Aug. 22 to 69.40 in the month ending Sept. 22 and 71.80 in the month ending Oct. 22.
The “warehouse inventory” sub-index decreased from 55.47 in the month ending Aug. 22 to 51.09 in the month ending Sept. 22, but grew to 52.99 in the month ending Oct. 22.
The “exports” sub-index decreased from 48.26 in the fifth month of the current fiscal year to 45.24 in the sixth month, but increased to 47.05 in the seventh month.
The “prices of manufactured products or services” sub-index increased from 51.96 in the month ending Aug. 22 to 54.57 in the month ending Sept. 22 and 57.45 in the month ending Oct. 22.
The “fuel consumption” sub-index decreased from 56.82 in the month ending Aug. 22 to 45.32 in the month ending Sept. 22, but grew to 46.11 in the month ending Oct. 22.
The “sales” sub-index increased from 50.35 in the month ending Aug. 22 to 52.83 in the month ending Sept. 22, but decreased to 42.56 in the month ending Oct. 22.
The sub-index of “business output forecasts for the following month” decreased from 63.72 in the month ending Aug. 22 to 52.47 in the month ending Sept. 22, but increased to 59.58 in the month ending Oct. 22.
The overall PMI increased from 48.06 in the month ending Aug. 22 to 52.08 in the month ending Sept. 22, but declined to 50.19 in the month ending Oct. 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.
