IHSMarkit reported the Purchasing Managers' Index (PMI) of Indonesia stood at 50.6 in November, up nearly three points compared to the previous month at 47.8 - Photo by Pertamina Office

JAKARTA (TheInsiderStories) – IHSMarkit reported the Purchasing Managers’ Index (PMI) of Indonesia stood at 50.6 in November, up nearly three points compared to the previous month at 47.8. The number showed that the business world is entering an expansion phase.

Commenting on the latest survey results, Bernard Aw, principal economist at the firm, said: “The move to transitional PSBB (large-scale social restriction) provided a boost to Indonesia’ manufacturing sector midway through the fourth quarter, with PMI data indicating an improvement in business conditions during November.”

He continued, “The upturn was largely driven by a record rise in production amid widespread reports of factory re-openings and improved demand. New orders also returned to growth, though the rate of increase was marginal.”

According to him, the subdued upturn in sales, and a further marked drop in backlogs of work, suggest that the strong output expansion was connected to manufacturers working through previously-placed orders. Firms remained reluctant to invest in new capacity and inventories, with factory employment and purchasing activity both contracting at solid rates.

In addition, said IHSMarkit, new orders rose for the first time in three months (3Q), but growth was only marginal, which saw operating capacity remaining in surplus. Consequently, firms remained cautious towards investing in capacity and inventories, and workforce numbers and purchasing activity shrank further. Meanwhile, inflationary pressures intensified.

He said, the PMI data indicating an improvement in the health of the sector for the first time since August. At 49.2, the average PMI reading for the fourth quarter so far is the strongest since Q3 2019. Following the loosening of large-scale social restrictions in Jakarta in mid-October, firms ramped up production in November, with output increasing at the fastest rate since the survey began over nine-and-a-half years ago.

Anecdotal evidence indicated that the reopening of production lines and increased sales had lifted output volumes. Demand conditions also improved, with inflows of new business increasing for the first time since August.

However, the rate of expansion was marginal. Survey data showed order book growth across both consumer and investment goods producers, while makers of intermediate goods reported a further decline in sales. With subdued sales growth, the survey indicated a surplus of operating capacity, as reflected by a further decrease in backlogs of work.

This dampened hiring. Employment shrank for a ninth straight month during November as forced redundancies continued to be reported by respondents. Firms also reduced purchasing activity and inventories. Input buying fell at the weakest rate in the current nine-month period of decline, however.

Stocks of purchases were drawn down again, extending the current trend of depletion to 11 months. Post-production inventories shrank for the fifth consecutive month, albeit only marginally. Supply chains remained under pressure. Delivery times for inputs lengthened for a tenth month in a row, with the rate of increase accelerating to the fastest since May.

Inclement weather, ongoing social distancing rules and a shortage of labour at distributors were cited as reasons for delivery delays. On the price front, input cost inflation intensified in November, with expenses rising at the fastest rate for three months. Panel members highlighted that greater prices for raw materials and a depreciation in the rupiah drove inflation higher.

Consequently, firms partially passed on higher costs to customers via higher charges. However, the increase in output prices was mild and far below the rise in input costs. Finally, business sentiment remained positive. The majority of firms continued to expect output to rise over the coming year, citing expectations of a return to normal market conditions alongside planned promotional activities and improvements to product quality.

Written by Editorial Staff, Email: theinsiderstories@gmail.com