Wednesday, August 12, 2020

Puerto Rico manufacturing contracts in April amid Covid-19 emergency

By on June 4, 2020

(Screen capture of https://www.ddec.pr.gov/)

PMI survey: Operations hit with supply shortages, staff, production cuts as demand falls

SAN JUAN – Puerto Rico manufacturing activity contracted sharply in April as the island’s Purchasing Managers’ Index (PMI) dropped below the threshold level of 50, to 44, due in large part to the Covid-19 pandemic.

The PMI had reached 50.5 in March, surpassing the threshold level for the first time in 11 months. A reading below 50 suggests a contraction in the sector with respect to the previous month, while a higher reading indicates expanded activity.

The PMI is calculated as the simple average of five sub-indexes, representing different conditions in establishments: new orders, production, employment, supplier deliveries and plant inventories. Three of the five sub-indexes fell below 50 in April, while two sub-indexes were below the threshold in March.

The new orders sub-index dropped from 55.3 in March to 30 in April, while the production sub-index fell from 50 to 25. The employment sub-index also shrank, from 39.5 to 32.5.

On the other hand, the supplier deliveries and plant inventories sub-indexes expanded in April. Supplier deliveries increased from 65.8 in March to 75 in April, while plant inventories surged from 42.1 to 57.5.

The PMI survey is the result of a collaborative project between the Puerto Rico Manufacturers Association (PRMA) and the Puerto Rico Statistics Institute (PRSI). Survey participants include manufacturing establishments with 50 or more employees with membership in the PRMA. 

In a PMI supplemental survey of manufacturing establishments, only 15 percent of respondents indicated their operations ceased following the health measures taken by the government due to the pandemic.

Several factors related to the crisis caused by the coronavirus outbreak affected local manufacturing, the survey found, namely a reduction in suppliers’ deliveries (45 percent), a reduction in demand (40 percent), a reduction in inventory (40 percent), a reduction in staff (35 percent), and others (20 percent).

The original curfew/lockdown order issued by Gov. Wanda Vázquez in mid-March exempted “essential” manufacturing operations involving food, pharmaceutical and medical device production. On March 26, the secretary of the Puerto Rico Economic Development & Commerce Department (DDEC by its Spanish acronym), Manuel Laboy, issued a notice allowing textile and apparel manufacturers on the island to reopen for the exclusive production of personal protective equipment used in the fight against Covid-19, as well as for filling of U.S. Department of Defense contracts.

Additional manufacturing activities were allowed in May when the governor relaxed the lockdown order and gradually reopened the economy as local Covid-19 cases and deaths seemed to be under control.

Second lowest in a decade

The April PMI of 44 was not the lowest figure in the survey’s 10-year history. The PMI hit a low of 33.1 in September of 2017, when hurricanes Irma and Maria struck Puerto Rico. The manufacturing index recovered soon thereafter and remained above the 50 threshold until March 2019, followed by 11 months of contraction that ended in March.

The PMI has been at or above the threshold level in 67 of the 120 months since the survey was first undertaken in 2010. The index is currently available only on a non‐seasonally adjusted (NSA) basis, which means seasonal fluctuations can affect its performance.

You must be logged in to post a comment Login