Tourist arrivals in Hong Kong surge 14.1% in 1H11

The unemployment rate for July is expected to stay flat at 3.5%, signaling a robust job market supported by inbound tourism. 1H11 saw 14.1% YoY increase in tourist arrivals – the highest half-yearly figure ever recorded. Indeed, the retail sector saw 13.2% fall in the number of unemployed persons since Dec10. Overall, the tight labor market will keep upward pressure on nominal wages, helping Hong Kong people cope with rising inflation.

Downside risks to the labor market have increased due to heightened external uncertainties. Nonetheless, any adjustment in the unemployment rate will be capped as long as China maintains robust growth. Despite expectations for mild growth deceleration in 2H11, a hard landing in China within this year is remote. That said, we shall keep a close eye on retail sales and tourism figures – closely tied to Chinese growth – as these will likely dictate unemployment in the months ahead. We expect the unemployment rate to remain largely flat throughout 3Q.