Consumers Remain Upbeat in January

M O N T H L Y R E P O R T R i D A N A R E K S A R E S E A R C H I N S T I T U T E R i/1307/cc/2017 C O N S U M E R February 2018 Consumers Remain Upbeat in January Consumer Confidence stood unchanged in January 2018. In this month, the Consumer Confidence Index (CCI) stayed at 101.8. Our survey reveals that while consumers gave less positive assessments on current national economic conditions, they are still optimistic toward the future. In particular, consumers are more upbeat toward their family incomes over the next six months, as well as the outlook for the local economy and the job market. Of the two main components which make up the CCI, one increased and the other declined. The component measuring consumer sentiment toward current conditions, the Present Situations Index (PSI), dipped 0.7 percent to 83.9, as sentiment toward the current state of the national economy deteriorated in January 2018. As for the other main component of the CCI - the one measuring consumer sentiment toward the future (the Expectations Index or EI) it climbed 0.4 percent to 115.2. The increase in this index reflects stronger consumer optimism toward the local economy and the job market outlook over the next six months. However, consumers were less upbeat on the national economic outlook. With consumers less upbeat on the national economic outlook, buying intentions for durable goods also declined in January 2018. In our survey, 42.69 percent of consumers expressed plans to purchase a durable good over the next six months, or down from 46.35 percent in the previous month. Nevertheless, on a yearly comparison, buying intentions for durable goods are still higher since 29.06 percent of consumers expressed plans to purchase a durable good back in January 2017. ASTI SUWARNI Analyst (62-21) 29555777/ 888 ext 3608 asti@danareksa.com MARTIN JENKINS Analyst (62-21) 29555777/ 888 ext 3609 martin@danareksa.com Consumer confidence in the government s ability to carry out its duties weakened in the January 2018 survey. After edging down 0.4 percent in the previous survey, the Consumer Confidence in the Government Index (CCGI) retreated 2.5 percent from 106.1 to 103.4 in January 2018. In our survey, four components of the CCGI declined while one component increased. Nonetheless, four CCGI components are still above the neutral level of 100, thereby indicating that consumers are generally convinced in the government s ability to carry out its duties. www.danareksa-research.com

THE JANUARY 2018 RESULTS Consumer Confidence stood unchanged in January 2018. In this month, the Consumer Confidence Index (CCI) stayed at 101.8. Our survey reveals that while consumers gave less positive assessments on current national economic conditions, they are still optimistic toward the future. In particular, consumers are more upbeat toward their family incomes over the next six months, as well as the outlook for the local economy and the job market. Of the two main components which make up the CCI, one increased and the other declined. The component measuring consumer sentiment toward current conditions, the Present Situations Index (PSI), dipped 0.7 percent to 83.9, as sentiment toward the current state of the national economy deteriorated in January 2018. As for the other main component of the CCI - the one measuring consumer sentiment toward the future (the Expectations Index or EI) it climbed 0.4 percent to 115.2. The increase in this index reflects stronger consumer optimism toward the local economic and the job market outlook over the next six months. By region, consumer confidence improved in three of the six regions covered by the survey. Sentiment improved the most in West Java (where the index added 2.8 percent to 95.3 in January 2018), followed by Jakarta (where the index edged up 2.2 percent to 124.7), and South Sulawesi (where the index rose 1.3 percent to 103.1). By contrast, confidence still deteriorated in North Sumatra (where the index retreated 3.9 percent to 84.6 in January 2018), followed by East Java (where the index edged down 1.7 percent to 103.8), and Central Java (where the index slipped 1.0 percent to 106.9). The optimism of consumers in different income bands was mixed. For the high-income consumers (incomes above Rp3,000,000 per month), the CCI added 1.5 percent from 111.4 to 113.1 in January 2018, while for the low-income consumers (incomes below Rp1,500,000/month), the CCI retreated by 3.0 percent from 94.6 to 91.8. Meanwhile, changes in confidence also varied between rural and urban areas. While the CCI for urban consumers climbed by 0.4 percent to 103.6 in January 2018, the CCI for rural consumers fell by 0.9 percent to 97.8. Chart 1. Consumer Confidence was Steady in January 110 Consumer Confidence Index 100 90 80 70 Basic Food Price Hike Basic Food Price Hike 60 J-05 J-06 J-07 J-08 J-09 J-10 J-11 J-12 J-13 J-14 J-15 J-16 J-17 J-18

Chart 2. Urban Consumers were More Optimistic in January 110 Urban Areas Rural Areas 100 90 80 70 Jan-09 Oct-09 Jul-10 Apr-11 Jan-12 Oct-12 Jul-13 Apr-14 Jan-15 Oct-15 Jul-16 Apr-17 Jan-18 Table 1. The Consumer Confidence Index % Change Consumer Confidence 100.4 102.5 103.0 101.8 101.8 0.0 Present Situation 83.4 84.2 83.6 84.5 83.9-0.7 Expectation 113.2 116.2 117.6 114.8 115.2 0.4 Appraisals of Current Situations: Less Upbeat on the National Economy Consumers gave more negative assessments on the current state of the national economy in our latest survey (this index retreated 4.8 percent from 90.0 to 85.6 in January). In our survey, the proportion of consumers who claimed that national economic conditions were good declined from 21.6 percent to 20.0 percent, while the proportion of consumers who claimed that national economic conditions were bad increased from 31.6 percent to 34.4 percent. Nevertheless, a significant proportion of consumers (45.6 percent) said that national economic conditions were normal. In regard to the current state of the local economy, however, consumers gave more positive assessments (this index edged up 2.4 percent to 103.1 in January). Consumers remained concerned by several key issues. Most notably, 74.9 percent of consumers still cited high foodstuff prices as a major factor weighing on the local economy in the last three months (up from 69.3 percent in December). Furthermore, 33.9 percent of consumers expressed concerns on job scarcity (up from 33.1 percent) and 9.0 percent of consumers mentioned crop failure as a worry (up from 2.4 percent). In the January survey, consumers also gave more positive assessments on the current state of the job market (the index measuring sentiment toward job market conditions climbed 0.2 percent to 63.0). More specifically, fewer consumers claimed that jobs were hard to get (55.3 percent in January vs. 55.5 percent in December) while around 18.3 percent of consumers claimed that jobs were easy to get. Some 26.2 percent of consumers did not perceive any change in the job market. Overall, the low level of this index still indicates that the job market remains tough and that greater efforts are needed to tackle the perennial problem of unemployment.

Table 2. Appraisal of Current Situations %Change Economic Conditions 87.7 89.0 91.1 90.0 85.6-4.8 Local Area Economic Conditions 105.0 103.8 103.4 100.6 103.1 2.4 Employment Conditions 57.5 59.9 56.3 62.9 63.0 0.2 Chart 3. Key Concerns December 2017 Important factors that worsen local economic conditions in the past three months Januari 2018 Important factors that worsen local economic conditions in the past three months 6.1% 2.4% 7.8% 9.0% 12.8% 7.9% 69.3% 74.9% 33.9% 33.1% Increase in basic foodstuff prices Expensive and scarcity of fuel Crop Failure Job scarcity Natural Disasters Increase in basic foodstuff prices Expensive and scarcity of fuel Crop Failure Job scarcity Natural Disasters Assessments on Near-Term Conditions: More Upbeat on the Local Economic Outlook Looking ahead over the next six months, consumers are more optimistic: the Expectations Index (EI) edged up 0.4 percent to 115.2 in January. Furthermore, three components of the EI increased and only one component declined. In January 2018, all components remain above the 100 level. This shows that consumers are generally still upbeat on the outlook for the economy and the job market over the next six months. The component of the EI to increase the most was the one measuring sentiment toward future family incomes. This component of the EI added 1.4 percent to 112.9 in January. In our survey, more consumers expect higher family incomes over the next six months (23.6 percent in January 2018 vs 23.1 percent in December 2017) while the proportion of consumers who expect lower family incomes declined from 11.7 percent to 10.7 percent. However, most consumers (65.5 percent) still don t expect any change in the outlook for future family incomes. The stronger optimism toward the prospects for family incomes is inline with the expectation of a better job market in the future (this index edged up 0.3 percent to 106.7). In regard to the local economic outlook, consumers are also more optimistic (this index climbed 0.4 percent to 119.5 in January). In more detail, our survey reveals that more consumers were upbeat on the local economic outlook (22.9 percent in January 2018 vs. 22.0 percent in December 2017) while around 3.4 percent of consumers were still downbeat. Nevertheless, a large proportion of consumers (73.3 percent) still foresee no change in the local economic outlook over the next six months. As for the national economy, however, consumers are slightly less upbeat on its prospects: this index slipped 0.5 percent to 121.9 in January 2018.

Table 3. Expectations in the Six Months Ahead % Change Economic Prospects 121.8 124.2 126.6 122.5 121.9-0.5 Local Area Economic Prospects 117.9 119.8 122.7 119.0 119.5 0.4 Employment Prospects 106.1 107.4 107.7 106.4 106.7 0.3 Family Income Prospects 107.0 113.4 113.5 111.4 112.9 1.4 Purchasing Intentions for Durable Goods: Weakened With consumers less upbeat on the national economic outlook, buying intentions for durable goods also declined in January 2018. In our survey, 42.69 percent of consumers expressed plans to purchase a durable good over the next six months, or down from 46.35 percent in the previous month. Nevertheless, on a yearly comparison, buying intentions for durable goods are still higher since 29.06 percent of consumers expressed plans to purchase a durable good back in January 2017. Of the ten categories tracked by our survey, however, buying intentions only declined in four of them. Most notably, buying intentions for livestock declined significantly from 1.33 percent in December 2017 to 0.64 percent in January 2018. Meanwhile, buying intentions for gold & jewelry and motorcycles declined moderately. In the January 2018 survey, the proportion of consumers who want to renovate their homes also declined (down from 2.96 percent to 2.15 percent). By contrast, buying intentions in six categories of goods still increased. Most notably, buying intentions for houses tripled from 0.46 percent in December 2017 to 1.45 percent in January 2018. Buying intentions for automobiles, bicycles, and land also increased significantly. Finally, buying intentions for audio-visual equipment and home appliances increased moderately from 4.64 percent to 4.76 percent and from 7.66 percent to 7.83 percent in January 2018, respectively. Table 4. Buying intensions Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Automobile 0.29 0.58 0.46 0.58 0.75 Motorcycle 1.97 2.26 2.55 2.84 2.67 Bicycle 0.23 0.29 0.41 0.12 0.17 House 0.87 0.46 0.75 0.46 1.45 House Renovation 2.32 3.25 3.07 2.96 2.15 Land 0.12 0.17 0.41 0.35 0.46 Audio-visual 4.23 4.58 4.81 4.64 4.76 Home appliance 6.84 6.32 8.24 7.66 7.83 Gold & jewelry 1.45 1.04 2.03 1.86 1.22 Livestock 0.64 0.41 0.35 1.33 0.64

Expectations on Key Economic Variables: Inflationary Pressure is Expected to Ease In our latest survey, consumers said they expected inflationary pressures to ease slightly over the next six months. Overall, the index measuring consumer sentiment toward general prices slipped 0.8 percent from 186.8 to 185.3 in January 2018. Furthermore, this index is still lower than its level one year ago, when the index reached 187.1 in January 2017. The expectation of easing inflationary pressures is unsurprising, however, since the prices of certain products, especially foodstuffs and clothing, usually adjust to their normal levels once the Christmas and New Year festivities have passed. Furthermore, the decline in this index may also be attributable to expectations that foodstuff prices will fall due to greater supply of foodstuffs because of the onset of the harvesting season in February. In regard to interest rates, fewer consumers foresee higher interest rates over the next six months (31.9 percent in January 2018 vs 34.7 percent in December 2017) while around 4.8 percent of consumers foresee lower interest rates. Nevertheless, a significant proportion of consumers (24.4 percent) still expect interest rates to remain unchanged. As such, overall, the index measuring sentiment toward interest rates retreated 1.2 percent to 127.1 in January 2018. As for the rupiah, consumers in the main cities are less pessimistic on the outlook for the local currency. In our survey, the index measuring sentiment toward the rupiah added 3.8 percent to 73.2 in January 2018. In regard to the outlook for stock prices, consumers are also optimistic that Indonesian stocks will record gains over the next six months (this index climbed 3.4 percent to 114.5 in January 2018). Table 5. Expectations on Prices % Change General Prices Expectation 182.4 181.8 183.2 186.8 185.3-0.8 Interest Rates Expectation 126.4 124.8 127.6 128.7 127.1-1.2 Exchange Rates Expectation 74.6 79.3 83.6 70.5 73.2 3.8 Stock Prices Expectation 110.7 112.1 107.8 110.7 114.5 3.4

Confidence in the Government: Weakened Consumer confidence in the government s ability to carry out its duties weakened in the January 2018 survey. After edging down 0.4 percent in the previous survey, the Consumer Confidence in the Government Index (CCGI) retreated 2.5 percent from 106.1 to 103.4 in January 2018. In our survey, four components of the CCGI declined while one component increased. Nonetheless, four CCGI components are still above the neutral level of 100, thereby indicating that consumers are generally convinced in the government s ability to carry out its duties. The component of the CCGI to decline the most in January was the one measuring sentiment toward the government s ability to stabilize prices. This index retreated 7.6 percent from 84.2 to 77.8, its lowest level in the last 7 months. Also down was the component measuring sentiment toward the government s ability to provide and maintain public infrastructure. This index retreated 2.5 percent from its highest ever level of 121.7 to 118.6 in January. Consumers are also less convinced in the government s ability to ensure a safe and orderly environment. The relevant index dropped 2.4 percent from its highest level in the last 7 years of 115.1 to 112.4 in January 2018. Meanwhile, the component of the CCGI measuring sentiment toward the government s ability to enforce the rule of law also edged down 1.1 percent from 104.5 to 103.3 in January 2018. Note that perceptions of weak law enforcement have dragged down consumer sentiment toward the government in the past. By contrast, one component of the CCGI still increased in the January 2018 survey: the component of the CCGI measuring sentiment toward the government s ability to spur economic growth edged up 0.2 percent from 104.8 to 105.0 in January 2018. Table 6. Confidence Toward The Current Government %Change Recovery National Economy 97.4 102.4 107.8 104.8 105.0 0.2 Stabilize the Price of Goods 83.6 87.4 93.3 84.2 77.8-7.6 Provide and maintain public infrastructure 117.2 116.5 118.8 121.7 118.6-2.5 Ensure a safe and orderly environment 110.1 113.2 113.2 115.1 112.4-2.4 Enforce the rule of law 101.3 104.9 99.3 104.5 103.3-1.1 CCGI 101.9 104.9 106.5 106.1 103.4-2.5 * Note: Starting in April 2007, the Consumer Confidence in the Government Index (CCGI) has been adjusted to the year of 2003 = 100

TABLE 7. CCI - COMPOSITE SERIES CCI by Regions Dec-17 Jan-18 MoM %Change National Consumer Confidence Index 101.8 101.8 0.0 Present Situation 84.5 83.9-0.7 Expectations 114.8 115.2 0.4 Jakarta Consumer Confidence Index 122.0 124.7 2.2 Present Situation 97.0 100.0 3.1 Expectations 140.8 143.3 1.8 West Java Consumer Confidence Index 92.7 95.3 2.8 Present Situation 66.2 65.7-0.8 Expectations 112.6 117.5 4.4 Central Java Consumer Confidence Index 107.9 106.9-1.0 Present Situation 93.1 91.0-2.3 Expectations 119.1 118.8-0.2 East Java Consumer Confidence Index 105.6 103.8-1.7 Present Situation 100.7 97.3-3.3 Expectations 109.3 108.6-0.6 North Sumatera Consumer Confidence Index 88.0 84.6-3.9 Present Situation 62.8 59.1-5.8 Expectations 107.0 103.8-3.0 South Sulawesi Consumer Confidence Index 101.7 103.1 1.3 Present Situation 91.6 95.5 4.2 Expectations 109.3 108.7-0.5 TABLE 8: NATIONAL FIGURES CCI by Classification RespondentDec-17 Jan-18 MoM Profile (%) %Change Age of Respondents 20-29 16.6 108.1 108.0-0.1 30-39 25.4 103.6 102.8-0.8 40-49 29.6 103.0 100.6-2.4 50-59 20.6 97.0 98.7 1.8 60 and over 7.7 91.4 98.4 7.7 Educational Level Primary School or less 32.1 91.5 95.8 4.7 High School 59.7 105.4 103.2-2.1 Academy/University 8.2 114.4 115.4 0.9 Households Income under RP 1.500.000,- 11.5 94.6 91.8-3.0 Rp 1.500.001-3.000.000 56.1 97.3 97.3 0.0 Rp 3.000.001,- and over 32.4 111.4 113.1 1.5 Type Area Urban 70.4 103.2 103.6 0.4 Rural 29.6 98.7 97.8-0.9 Gender Male 50.0 102.3 100.5-1.8 Female 50.0 101.4 103.1 1.7 Occupation Worker 28.2 105.9 103.7-2.1 Self employed 34.5 98.2 100.3 2.2 Unemployed 37.2 102.1 101.7-0.4 * An index reading above 100 indicates that positives responses outnumber negative responses

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