Bad News for Early September: Indonesia's Manufacturing PMI Contracts, Layoffs Rise

The performance of Indonesia’s manufacturing sector slowed and entered contraction territory in August 2026.

Purchasing Managers’ Index (PMI) data released by S&P Global today, Tuesday (1/9/2026), showed Indonesia’s PMI at 49.8 in August 2026, indicating contraction.

The PMI reversed direction from the previous expansionary phase in July 2026.

The PMI uses 50 as the starting point. If it is above 50, the business world is in an expansion phase. Below that indicates contraction.

S&P Global’s report showed that business conditions in Indonesia’s manufacturing sector were generally relatively stable again in the middle of the third quarter of this year.

The renewed decline in manufacturing output, although relatively mild, weighed on the overall condition of the sector. However, new orders increased slightly for the first time in three months.

Maryam Baluch, Economist at S&P Global Market Intelligence, said the latest PMI data showed a slight deterioration in the condition of Indonesia’s manufacturing sector.

The renewed decline in output and employment reversed the improvement recorded in the previous month. Meanwhile, demand conditions were generally relatively neutral.

The latest decline in output was attributed to increased competition, sluggish demand conditions, and higher goods prices.

“Nevertheless, inflationary pressures eased again. In addition, business confidence also continued to recover from its lowest point in April. This indicates that although overall sector performance remains constrained, manufacturers still hope that conditions will improve,” said Maryam, quoted from the official S&P Global website.

Purchasing activity was stable and raw material inventories increased slightly in August as a number of companies sought to anticipate potential raw material price increases.

Layoffs Rise, Many Employees Resign

In line with the renewed decline in output, a number of companies reduced their workforce.

Employment levels re-entered contraction territory due to a combination of resignations and layoffs in response to lower production needs.

Other companies reported difficulty retaining staff due to voluntary resignations.

Meanwhile, backlogs of work increased for the second consecutive month. The pace of accumulation remained moderate but was lower than in July.

On the other hand, demand conditions showed some signs of resilience.

The seasonally adjusted new orders index returned to expansion territory for the first time in three months. However, the figure was only slightly above the neutral 50.0 level, indicating that the increase in new orders was still very small.

A number of companies reported increased demand and additional orders from customers. However, this was largely offset by other companies still facing sluggish demand, increasingly tight competition, and declining customer purchasing power.

After declining for five consecutive months, company purchasing activity stabilised in August.

The increased flow of new orders encouraged some companies to increase purchasing. However, the low flow of orders led other companies to reduce purchasing activity.

Companies also faced longer raw material delivery times. However, the level of delay remained mild and only slightly higher than in July.

Companies Stockpile Supplies

Raw material inventories increased for the first time in five months, albeit only slightly. In some cases, companies sought to build safety stock to anticipate rising raw material costs.

Conversely, post-production inventories were reduced again in August, recording a decline for the fourth consecutive month.

The pace of inventory reduction was moderate but was the fastest alongside the decline in May 2025 in more than four years.

On the price front, inflationary pressures eased again in August.

Nevertheless, the inflation rate for raw material prices and product selling prices remained historically high. High raw material prices and increased costs from suppliers drove up company operating costs, which were then often passed on to consumers through price increases.

The business community also remained optimistic.

Business confidence rose to its highest level in seven months, amid business players’ hopes for stronger demand conditions and stable market conditions to support increased production over the next 12 months.