Indonesia’s Confidence Index Rose. The Income Line Went the Other Way.

Indonesia’s consumer confidence index rose to 119.9 in October from 118.1 in September, its highest reading since May, according to Phintraco Sekuritas, which cited the survey in a note on Tuesday. The same morning the Jakarta Composite Index added 23 points, or 0.45%, to 5,096 in early trade.

The two numbers point in the same direction and are worth different amounts. Turnover in the opening minutes was Rp 221.56 billion, about $12.27 million, across 39,575 transactions, with 257 stocks up, 119 down and 202 flat. A 0.45% gain on that breadth and that value is a market following sentiment, not one absorbing money.

The survey’s components matter more than its headline. The Current Economic Conditions Index reached 109.1 and the Consumer Expectations Index 130.7. Households report feeling better about both the present and the next six months. A confidence index measures opinions about conditions, and a 1.8 point move in a monthly survey sits close to the range where the number stops carrying information.

The 21.6 point gap between those two sub-indices is the more interesting figure. Expectations running that far ahead of assessments of the present is what a survey looks like when households are pricing in an improvement they have not yet experienced. It is also the pattern that reverses fastest if the improvement does not arrive, which is why the spending series and not the confidence series is the one to weight.

Spending has been slower to follow.

Household consumption grew 5.04% year on year in the third quarter, down from 5.06% in the previous quarter, against headline GDP growth of 5.47%. The half-point gap between those two figures is the part of the economy that investment and exports are carrying.

Kiwoom Sekuritas Indonesia put the caveat directly, saying the recovery in purchasing power remains fragile. Its evidence is the current income index, which fell to 114.9 from 117.1 a year earlier. A household can report more confidence about the direction of the economy while also reporting less income than it had twelve months ago, and the second number is the one that sets the spending plan.

Kiwoom’s conclusion was that fiscal stimulus still supports consumption, and that employment, productivity and real wages need to strengthen for the recovery to hold without it. That is an argument about what happens when transfers stop. The confidence survey cannot settle it either way.

The car market offers a harder test.

New car sales rose 10.1% year on year in October to 81,482 units, after 28.1% growth in September. Motorcycle sales rose 7.9%, down from 15.37%. Both segments are still expanding and both decelerated by a wide margin in one month. Vehicles are the largest credit-financed purchase most Indonesian households make, which makes the segment sensitive to instalment terms and to expectations about income rather than to how people answer a survey.

Phintraco read the moderation as seasonal, noting that automotive sales historically pick up toward the end of the year on promotions, discounts and incentives. That reading is reasonable and untestable until December. A slowdown that reverses in November is a calendar effect. One that does not is a different problem, and the same series will say which.

The next data point arrives on the same day. September retail sales were scheduled for release on November 10, and Phintraco flagged them as the number to watch. Retail sales record what households bought, which is the variable the confidence index is being used to forecast.

There is a monetary backdrop underneath all of this. Pluang Research noted that falling oil prices and a weaker dollar had eased the inflationary pressure that had been weighing on gold, and that US labour market strength plus overheating risk could push the Federal Reserve to raise rates in December. Higher US rates tighten financial conditions for emerging markets generally, and for a currency and bond market that foreign investors treat as a carry trade in particular. The rupiah’s level feeds back into import costs, and import costs feed back into the cost-of-living pressure that the confidence survey is partly measuring.

Gold runs through the same note as a second thread. Central banks bought 321 tons net in a single quarter, and Pluang argued that those purchases are the main support for the price because the buyers are reserve managers diversifying rather than traders taking a view. For a domestic investor deciding between gold and equities, the two assets compete for the same rupiah at a moment when the yield outlook is unclear and the confidence number is improving.

Wall Street set the tone for the region. The S&P 500 rose 2.4%, the Nasdaq 2.7% and the Dow 2.2% on Monday, the strongest session since April, as investors bought back shares sold the previous week. A rebound of that size in one day is a positioning move more than a reassessment of earnings, and it explains why Jakarta opened higher without domestic news to drive it.

What the composite index does with the confidence reading is, in the end, a question about credit. Consumption in Indonesia runs on instalment debt for vehicles, motorcycles and household goods, and the categories that decelerated most sharply in October are the ones bought on credit. If the income index keeps falling while confidence rises, the divergence will appear in loan growth before it appears in GDP.

Two things would change that reading. A November car number back above 15% would make October a calendar artefact. A September retail sales figure strong enough to suggest households are absorbing the income squeeze would undercut the Kiwoom argument. Neither is in hand yet, and both will arrive within the next few weeks of trading.

The two series will be reconciled in the fourth quarter, when the retail sales figures and the year-end promotional season are both in hand. Until then, the reading that survives scrutiny is narrow: households say they feel better, they are buying slightly more, and the income line that determines whether either can last is lower than it was a year ago.