Operating Conditions of Hong Kong Companies Deteriorate Fractionally in September

Operating conditions faced by Hong Kong private sector companies deteriorated for the second successive month in September. That said, the rate of deterioration was similar to the previous month and only fractional.

Output increased slightly in September, offsetting a marginal reduction in August, while volumes of new business were broadly unchanged from the previous month. Meanwhile, job shedding across the sector persisted, with the pace of reduction quickening slightly from August, and purchasing activity fell for the third straight month.

The HSBC Hong Kong Purchasing Managers’ Index (PMI) posted below the 50.0 no-change mark at 49.8 in September, up fractionally from 49.6 in August, and signalled a fractional deterioration in Hong Kong’s private sector operating conditions.

"Although output grew marginally in September, firms cut employment at a faster pace and that could put a downward drag on consumption in the next few quarters," said John Zhu, Economist at HSBC in Asia. "New orders will likely have to pick up more significantly in the coming months before the downward trend in employment reverses."

Business conditions have remained near stagnant throughout the past seven months. The PMI is a composite index designed to provide timely indications of changes in prevailing business conditions in Hong Kong’s private sector economy.

Latest data signalled a renewed expansion of Hong Kong private sector output in September, albeit only slight. Anecdotal evidence suggested that improved client demand and new product launches boosted production over the month.

Meanwhile, total new business was little-changed from the previous month in September, following a four-month sequence of contraction. Data suggested that new order growth was partly dampened by new work intakes from Mainland China, which declined for the second month in a row.

Private sector companies in Hong Kong continued to cut their staff numbers in September, amid reports of relatively muted client demand. Though only modest, the rate of job shedding was the quickest in four months.

Meanwhile, backlogs of work rose for the second successive month, albeit fractionally. Where higher volumes of unfinished work were noted, these were generally attributed to greater than expected volumes of new work.

Purchasing activity declined for the third month in a row, with a number of companies lowering their input buying due to subdued client demand. Consequently, stocks of inputs fell for the first time since November last year, albeit marginally.

Average cost burdens faced by private sector firms in Hong Kong rose for the twenty-sixth consecutive month in September and at a modest rate. Data suggested that overall input price inflation was largely driven by higher staffing costs, as purchasing prices rose only fractionally over the month. Furthermore, the pace of wage inflation accelerated to the strongest in eight months.

Average output prices also increased in September, albeit at a marginal pace that was similar to that recorded in August.

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