Hong Kong's Private Sector Output Dips in August

Following a slight expansion in July, Hong Kong’s private sector output declined during August, albeit marginally, while total new business fell for the fourth successive month, shows the HSBC Hong Kong Purchasing Managers’ Index.

Consequently, companies reduced their input buying, and at the strongest rate since November 2011, while staffing levels fell for the fifth consecutive month.

The HSBC PMI posted below the 50.0 no-change mark at 49.6 in August, down from 50.4 in July, signaling a renewed deterioration in Hong Kong’s private sector operating conditions.

Although the rate of decline was only slight, it was the first time that the health of the sector has deteriorated since May. The PMI is a composite index designed to provide timely indications of changes in prevailing business conditions in Hong Kong’s private sector economy.

Data suggested that external demand was particularly weak, with new orders from Mainland China falling markedly in August after a slight increase in July.

Staffing levels cut

In response to lower intakes of new work, companies cut their staffing levels again in August, extending the current sequence of job shedding to five months. That said, the rate of reduction remained marginal overall.

Meanwhile, backlogs of work rose for the first time since April. The pace of accumulation was only slight, however, with some companies attributing the rise to capacity pressures that stemmed from reduced output.

In line with reduced production requirements, purchasing activity declined for the second consecutive month in August. Moreover, the rate of reduction quickened from July to the strongest since November 2011.

In contrast, stocks of purchases rose for the fourth month in a row. However, the rate of growth eased for the second straight month to a marginal pace.

On the cost front, total input costs continued to increase at Hong Kong private sector firms in August.

The rate of overall input price inflation was only moderate, and weaker than the series long-run average. Data suggested that inflationary pressures were driven by moderate increases in both purchasing prices and staffing costs.

Following broad stagnation in July, average selling prices set by Hong Kong private sector businesses increased in August. That said, the rate of output charge inflation was only slight.

Companies that raised their tariffs generally attributed this to the passing on of higher input costs to clients.

"Coming after the weaker-than-expected Q2 GDP data, the August HSBC Hong Kong PMI suggests the economy is still in a cyclical slowdown,"  says John Zhu, Economist at HSBC in Asia.

"The outlook remains uncertain, with new orders contracting for the fourth consecutive month and new business from Mainland China falling again."

Zhu add that the slowdown in demand is also affecting the labour market, posing risks to unemployment and consumption in the second half of the year.

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