Indonesian Manufacturing in 9-month High As New Order Growth Quickens

August 02, 2012 /

Latest data signalled an improvement in Indonesian manufacturing sector operating conditions during July.

Underpinning this was a faster rise in new orders, which in turn supported a slight expansion of output. Employment and stocks of purchases also rose, while average supplier delivery times were broadly unchanged.

The headline figure derived from the survey is the Purchasing Managers’ Index™ (PMI™). Readings above 50.0 signal an improvement in business
conditions on the previous month while readings below 50.0 show a deterioration. The PMI is composed of five sub-indices tracking changes in new orders, output, employment, suppliers’ delivery times and stocks of purchases.

The PMI registered 51.4 in July, up from 50.2 in June, the highest posting since October 2011, albeit indicative of only a modest improvement in business conditions in the Indonesian manufacturing sector.

The amount of new orders placed with Indonesian manufacturers rose for a second consecutive month in July. Furthermore, the pace of expansion quickened to the fastest since October 2011. Growth of new business
was primarily supported by improved domestic demand.

This was highlighted by the fact that new export orders fell for the fourth month running, and at the sharpest rate since April 2011.

The rise in new work was insufficient to prevent a further reduction in the level of outstanding business at Indonesian manufacturers during July. Backlogs have decreased throughout the survey’s short history, although the latest drop was weaker than that registered in the previous month.

Stronger demand for Indonesian manufactured goods encouraged firms to boost their stocks of finished goods. Post-production inventories rose, albeit at a modest rate.

Employment in the Indonesian manufacturing sector increased for a second successive month in July, albeit at a marginal pace. The majority of panellists (87%) signalled no change in staffing levels since June.

The quantity of inputs bought by Indonesian manufacturers rose in July, and at the sharpest rate in four months. This contributed to an increase in stocks of raw materials held by firms. Average delivery times from suppliers were broadly unchanged compared with one month previously.

Input prices continued to rise strongly in July, although the rate of inflation eased slightly since June. There were reports from a number of panel members of higher prices paid for general raw materials.

Prices charged by Indonesian manufacturers for finished goods continued to increase. That said, the latest increase in factory gate
prices was modest and the weakest since December 2011.

Su Sian Lim, ASEAN Economist at HSBC said: “Manufacturing activity continued to expand on the back of new orders. But the divergence between domestic and external demand is becoming more pronounced, with the contraction in new export orders worsening for yet another month.

“Inflationary pressures appear to have cooled a touch, judging by the easing in both input and output price indices.”


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