Hong Kong’s PMI rises to 51.4 in July

Operating conditions in the private sector of the Hong Kong economy improved only slightly during July, as demand generally remained subdued and underlying cost pressures continued to grow. Output expanded at a moderate pace while new orders returned to growth after a contraction during June. Stocks of purchases rose for the first time in four months, but the quantity of purchases fell for the second month running.

The headline HSBC Hong Kong Purchasing Managers’ Index – a composite index designed to provide timely indications of changes in prevailing business conditions in Hong Kong’s private sector economy – registered 51.4 in July, up from 50.3 in June. The latest figure signalled a small improvement in overall operating conditions for companies in Hong Kong that was stronger than in June.

The rise in the headline index was led by an increase in new orders received in July. This marked a return to growth following the first month-on-month fall in two years during June. Anecdotal evidence suggested that the rise in new business was primarily attributable to a slight strengthening in domestic demand.

Chinese demand for Hong Kong’s goods and services also showed signs of improvement during July. New orders from the mainland grew solidly, increasing at a faster rate than the long-run series average.

Despite the rise in new orders, outstanding business fell for the second consecutive month in July. While the contraction was again only minor, it was a considerable change from the increases in backlogs of work reported earlier in the year.

Private firms in the Hong Kong economy expanded output again during July. However, the increase in business activity was moderate and considerably slower than the growth reported earlier in the year.

Companies operating in Hong Kong continued to face considerable cost pressures during July. Salary cost inflation grew again, due in part to the impact of the recently-introduced minimum wage legislation. Employment rose for the seventh consecutive month, to address previous capacity shortfalls and to meet new order volumes.

The greatest cost inflation was recorded in purchasing prices. The average price of inputs rose at the fastest rate in the 12- year series history due to high prices for a number of raw materials and currency depreciation. However, the rise in overall input costs was not fully passed on to customers. The rate of increase in prices charged by Hong Kong businesses was strong, but the slowest in the past five months.

Purchasing activity by businesses fell during July. In spite of this, signs of strengthening demand encouraged companies to hold more stocks of purchases. However, the rate of increase in pre-production inventories was only marginal.