Hong Kong’s PMI plunges to 47.8 in August

Operating conditions in Hong Kong’s private sector economy deteriorated for the first time in over two years in August, as demand contracted markedly in the midst of a worsening economic environment. Output fell at a moderate pace, while new orders returned to contraction after a minor rise during June. Growth of new orders from the Chinese mainland was subdued, while employment fell for the first time since December 2010 and purchasing activity continued to contract. Furthermore, price pressures remained strong.

The headline HSBC Hong Kong Purchasing Managers’ Index registered 47.8 in August, down notably from 51.4 in July. The latest figure signalled the worst deterioration in overall operating conditions for companies in Hong Kong in 26 months.

The fall in the headline index was led by a decrease in the output of private sector firms in the Hong Kong economy during August. This marked the first decline in output for 26 months, and was the quickest rate of contraction since May 2009 as demanded weakened considerably.

The softening in demand was illustrated by the reduced volume of new orders at Hong Kong’s private sector firms during August. While the contraction in new business was moderate, it was the quickest rate of decline since June 2009. Consequently, the contraction in backlogs of work quickened to the fastest pace since June 2009.

However, Chinese demand for Hong Kong’s goods and services remained positive as new orders from the Mainland grew for the eleventh consecutive month. Nevertheless, the rate of growth eased month-on-month, and fell below the average level for the current sequence of expansion.

Lower new orders and output discouraged hiring in Hong Kong’s private sector, as employment fell moderately during August. The reduction in staff numbers was the first since December 2010, and followed several months of slow growth. Many panellists noted staff resignations.

Expectations weakened on the back of the fall in demand, as purchasing activity by businesses fell during August. The reduction in month-on-month input buying was solid, and the rate of contraction quickened from July.

Overall input costs faced by Hong Kong’s businesses rose solidly during August, extending the current period of inflation to 26 months. The rate of inventory inflation slowed, however, as growth in both purchasing prices and staff costs eased. This, in turn, led to a fall in the seasonally adjusted Prices Charged Index to its lowest level in 11 months.

One positive impact from subdued activity was a shortening in suppliers’ delivery times. Vendor performance has improved for the past four months.