Hong Kong PMI for October nearly unchanged at 53.0

The Hong Kong private-sector economy remained buoyant at the start of the fourth quarter, led by robust rises in activity and incoming new business. At 53.0 in October, down marginally from 53.1 in September, the seasonally adjusted Hong Kong Purchasing Managers’ Index (PMI) – a composite index designed to provide a single-figure indicator of economic performance – signaled a further solid improvement in overall business conditions. However, the latest index reading was the lowest for six months, and below the average for 2006 (54.2) and 2007 so far (54.1).

The PMI has been an excellent indicator of business conditions in the Hong Kong economy throughout the history of the survey. Latest official data showed gross domestic product growth in Hong Kong gained traction in the second quarter of 2007. The annual rate of expansion rose from a revised 5.6 percent in the first quarter of 2007 to 6.6 percent in the second quarter of 2007. Looking ahead, the PMI indicates that the overall performance of the Hong Kong economy eased slightly during the third quarter of 2007 and at the start of Q4.

Data indicated a 34th successive monthly rise in business activity in October, and the rate of expansion was only slightly below that recorded during September. Anecdotal evidence suggested that activity levels were driven higher by strong demand from clients on the Chinese mainland and an associated improvement in total new order volumes. Growth of overall new business was robust in October and gained traction following the previous month’s low.

Hong Kong companies indicated a solid increase in outstanding work at their units in October and the rate of backlog accumulation was the most marked in the current six-month period of expansion.

Higher workloads did not prevent a further easing in the pace of job creation in the private-sector economy. Although the latest rise employment was only modest, it was broadly in line with the long-run series average.

Staff costs continued to increase at a robust pace in October and the rate of inflation accelerated to the strongest for four months. Purchase price inflation also intensified in the latest survey period, with higher oil-related costs the main factor leading to the sharpest increase in average purchasing costs since June 2006.

October’s sharp rise in overall cost burdens encouraged Hong Kong firms to raise their average charges for a 38th month running and the rate of inflation was the most marked in 2007 so far.

Latest data signaled a modest increase in stocks of purchases in the private-sector economy, largely reflecting an upturn in incoming new business. Rising inventory holdings were also supported by a robust expansion of purchasing in October, with the rate of growth the sharpest for eleven months. Despite strong demand at suppliers, latest data indicated an improvement in vendor performance for the first time in 14 months.