Indonesian Manufacturing Sector Expands at Fastest Pace for 10 Months

September 04, 2012 /

Operating conditions in the Indonesian manufacturing sector showed another modest improvement in August.

Output increased at a sharper rate, underpinned by a further rise in new orders. Companies added to their
staffing levels, while stocks of purchases grew at a faster pace. Supplier delivery times meanwhile lengthened marginally.

The 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 recorded 51.6 in August, up fractionally from 51.4 in July. Although indicative of only a moderate
improvement overall, the latest reading was the highest for ten months.

New order growth was recorded for the third month running in August. Panellists commented on solid market demand and increased numbers of customers as factors supporting the rise in new work. Data suggested that domestic demand was the principal support to new order growth, as export sales decreased slightly.

Rising inflows of new business helped stabilise backlogs of work during August. This ended the sequence of contraction that had been observed since data collection started in April 2011.

Employment growth was sustained for a third consecutive month in August. That said, the rate of job creation was only marginal, with the vast majority of firms reporting unchanged staffing levels.

Purchasing activity by Indonesian manufacturers increased further during August. Moreover, the rate of
expansion accelerated to a solid pace that was the strongest in five months. Stocks of purchases consequently rose for the second month running.

Supplier delivery times lengthened slightly, with a number of respondents commenting on transportation
difficulties.

Input prices continued to rise in August, amid reports of higher prices for a range of raw materials. However, the rate of cost inflation was the lowest for eight months and weaker than the survey’s long-run average.

Indonesian manufacturers passed on part of the increase in their costs to clients in the form of higher selling prices during August. The rate of output price inflation was solid and faster than in the previous month, although remained weaker than that signalled for input costs.

Finally, stocks of finished goods rose for a second successive month in August, as manufacturers expanded their inventories in anticipation of further new order gains. However, the rate of growth eased to only
a marginal pace.

Su Sian Lim, ASEAN Economist at HSBC said: “Amid the ongoing contraction in PMIs around the region, the steady improvement in Indonesia’s manufacturing sector is heartening. The smaller reduction in new export orders is also encouraging, and suggests that the decline in demand particularly from key Asian markets may be starting to bottom out.”

 

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