Hong Kong Private Sector Business Conditions Improve in July

Kimberly Watson, Editor in Chief
August 07, 2012 /

July data indicated improved business conditions in Hong Kong, but this was only slight and weaker than the long-run series average.

Both output and new orders rose over the month, albeit marginally, with firms generally citing greater client demand. Nevertheless, employment continued to fall, although at the weakest rate in the current three-month sequence of job losses.

Inflationary pressures meanwhile dissipated, with both output and input prices falling for the first time since November 2011 and June 2009 respectively.

After adjusting for seasonal variation, the headline HSBC Hong Kong Purchasing Managers’ Index™ (PMI®) posted above the 50.0 no-change mark in July, signalling an improvement in operating conditions. At 50.3, up from 49.8 in June, this was the first PMI reading above the no-change threshold in three months. However, being only just above the neutral level, the headline index indicated that the rate of growth was only slight.

The volume of new orders received by private sector firms increased for the second month running in July.

Panellists generally cited greater demand and some new client wins. However, the rate of new order growth was only marginal, with new work intakes from Mainland China falling further during the latest survey period.

In contrast to the previous two months of declines, private sector output increased in July. Approximately 14% of monitored companies reported higher levels of activity, and generally attributed this to the recent increase in new orders.

Backlogs of work meanwhile were broadly unchanged from that recorded for June. Reflective of higher output requirements, firms raised their stocks of purchases during the latest survey period.

Notably, the rate of inventory accumulation was the second-fastest in 16 months. Concurrently, suppliers’ delivery times continued to lengthen, as has been the case in eight out of the past ten months.

Employment in Hong Kong’s private sector fell for the third consecutive month in July, although the rate of decline was the weakest in this sequence of job losses.

Firms that reported lower headcounts (approximately 5%) largely linked this to staff resignations.

Monitored companies reported a reduction in both input and output prices during the latest survey period, although the rates of decline were only marginal. Notably, this was the first fall in input costs since June 2009, and generally reflected lower purchasing prices.

Meanwhile, selling prices fell for the first time in eight months, with a number of firms offering discounts to some clients.

Donna Kwok, Economist, Greater China Economic Research, HSBC, said:
“Hong Kong’s private sector is bucking the downward trend seen elsewhere in Asia, recording growth for the first time in three months. Weak European and Mainland demand continue to weigh on sentiment, but lower raw material prices, more favourable currency
movements and resilient domestic demand are keeping businesses humming and job market conditions stable.

Most critically, wages are still rising, helping to underpin household demand and buy more time for growth until a soft China landing is secured.”


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