Private Sector Output Falls for 2nd Month

July 04, 2012 /

Hong Kong’s operating conditions further dipped in June, but this was only marginal and to a lesser extent than in May.

Firms generally commented on weaker client demand as global business conditions worsened. Although new orders increased slightly over the month, output fell for the second consecutive month, sending unemployment rates high and purchases low. This eased inflationary pressures to some extent, with the rate of input price inflation slowing to its weakest pace in three years.

After adjusting for seasonal variation, the headline HSBC Hong Kong Purchasing Managers’ Index™ (PMI®) – a composite index designed to provide timely indications of changes in prevailing business conditions
in Hong Kong’s private sector economy – remained below the 50.0 no-change mark in June, signalling a further deterioration in overall operating conditions.

However, at 49.8, up from 49.4 in May, the PMI suggested that the latest deterioration was only slight. Private sector output in Hong Kong fell for the second consecutive month in June. Approximately 13% of surveyed firms reported a reduction in activity since May, with deteriorating global business conditions often cited.

That said, output fell only marginally, with the rate of decrease unchanged from that registered previously.

Meanwhile, incoming new work at firms increased in June, with a number of companies commenting on recent product launches. However, new business from Mainland China fell for the third month running and at the sharpest rate since last November. Although total new order growth was only marginal, it was nonetheless in contrast to the stagnation recorded in May.

Reflective of lower output requirements, the quantity of inputs bought by companies fell for the second month running in June. Lower stocks of purchases were also reported by survey respondents. Meanwhile, suppliers’
delivery times lengthened further during June, with the latest deterioration in vendor performance the greatest in seven months.

Job losses in Hong Kong’s private sector were reported for the second consecutive month in June. A number of firms commented on staff resignations. The latest reduction in staff headcounts was modest, although the rate of decline eased from that registered in May.

Continuing the trend that has been registered in each month since July 2009, input costs faced by private sector firms rose further in June. However, the latest increase was nonetheless the weakest in this sequence
of inflation.

Donna Kwok, Economist, Greater China Economic Research, HSBC, said: “The simultaneous weakening of European and Mainland demand continues to hamper Hong Kong’s private business sector growth. Despite that, Hong
Kong’s business activities continue to hold up significantly better than it did during the last downturn of 2008-2009. The resilience of its domestic demand remains intact, and it was strong enough to push new
orders back into expansion mode in June. While the job market is showing initial signs of strain, wage growth remains positive, which suggests that the impact of external headwinds on wage earners remains contained
for now.”

The HSBC Hong Kong PMI is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 300 companies. The panel is stratified geographically and by Standard Industrial Classification (SIC) group, based on industry contribution to Hong Kong GDP. Survey responses reflect the change, if any, in the current month compared to the previous month based on data collected mid-month.

For each of the indicators the ‘Report’ shows the percentage reporting each response, the net difference between the number of higher/better responses and lower/worse responses, and the ‘diffusion’ index. This index is the sum of the positive responses plus a half of those
responding ‘the same’.


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