Cranes on barges moored offshore unload waiting ships in Victoria Harbour in Hong Kong. The HSBC Hong Kong Purchasing Managers' Index rose to 52.3 in August from July's 51.3, mostly thanks to increased export orders, particularly from the mainland. Jerome Favre / Bloomberg news

August PMI rises to 52.3 from July's 51.3, thanks to more export orders

Business conditions in Hong Kong's private sector strengthened for the thirteenth consecutive month in August, as the HSBC Purchasing Managers' Index (PMI) rose to 52.3 from the previous month's 51.3. Stronger business orders, particularly from the mainland, were a key factor.

"HSBC's Hong Kong PMI delivered good news on multiple fronts in August," said HSBC economist Donna Kwok. Despite the stumble that the US recovery has taken of late, total overseas demand for Hong Kong business output remains robust. This is being underpinned by new mainland orders which continue to rise above trend."

A reading above 50 on the PMI signals an expansion in the private sector economy and an improvement in business conditions, while a reading below 50 indicates deterioration and contraction.

Incoming new business was reported to have increased solidly during August, regaining momentum lost during the previous month. New orders received from the mainland were also up, although the rate of growth slowed for a fourth successive month. Nonetheless, the latest increase was above the long-run average for the series.

The sustained rise in overall new orders enabled an increase in output for the fourteenth straight month. Economic activity also expanded in July, albeit modestly. In contrast with the previous survey period, backlogs at Hong Kong firms increased in August, indicative of pressure on operating capacity.

Employment in the private sector also rose in August. While the increase in staffing levels slowed marginally, it remained above the long-run trend for the series and was the eleventh consecutive monthly.

Purchasing activity increased only slightly during August. Wherever a rise was indicated this was attributed to higher output. Suppliers' delivery times continued to deteriorate, partly due to labor shortages at vendors, putting pressure on operating capacity.

August data signaled a substantial rise in overall input costs faced by companies in Hong Kong. "Tightening labor market conditions are pushing up inflationary pressures, but fierce competition is helping to mute the final impact on consumers," Kwok said.

Input cost inflation has accelerated since July. Higher purchase prices and wages both contributed to the rise in overall costs. Subsequently, output prices increased for a tenth successive month. However, the extent of the rise in charges was limited by strong competition for new business.

As further employment and wage rises are expected in future, as suggested by signs pointing to a labor shortage, domestic demand in Hong Kong should remain strong in the next month, especially when compared with peers such as Taiwan and Korea, Kwok added.

China Daily

(HK Edition 09/04/2010 page2)