HONG KONG: Although the rate of growth slipped from the previous month, Hong Kong's economy expanded modestly during September as incoming new business continued to stimulate expansion in production, the HSBC Purchasing Managers' Index (PMI) showed yesterday.

The PMI - a composite index designed to provide timely indications of changes in prevailing business conditions in the Hong Kong economy - fell to 51.8, from 52.8 in August, indicating business expansion was not as fast as it was during the previous month. PMI readings above 50 signal an improvement in business conditions while readings below 50 signal deterioration.

"Business activities in Hong Kong continued to improve, but growth is not yet from a broad base. Although companies have received more orders and there are increasing backlogs of work, companies are not ready to expand on the back of the delicate, albeit improving, global economy," said Janus Chan, an economic analyst at HSBC.

Incoming new business grew robustly in September, although the rate of increase fell marginally from that recorded in August, HSBC said in a PMI report yesterday. Higher overall new order levels stimulated a third successive rise in output, but one that was slower than that in August.

The degree of improvement in the economy is closely intertwined with the management of order backlogs. As unfilled orders accumulate, economic growth slows. Yet, staff cutbacks can reduce company costs, improving their bottom line, while creating an economic and financial dilemma for companies.

Backlogs continued to rise in September, and at a faster pace than in August.

In September, despite increases in orders, companies continued to cut staff - although labor cutbacks were slight and far fewer than in the first half of the year. The falling employment increased backlogs, but also resulted in eased staff costs in August, which, however, rose slightly in September.

By regional comparison, the bank announced last week that manufacturing on the mainland expanded for a sixth month in September on government stimulus spending and record bank lending in the first six months.

On the mainland, the PMI index dropped to 55 last month from 55.1 in August.

The Hong Kong PMI survey, which compares business conditions with those a month earlier, based on data from 300 private Hong Kong companies in manufacturing, services, retail and construction, accurately indicated Hong Kong's descent into recession in the third quarter of 2008.

(HK Edition 10/06/2009 page4)