Hong Kong: PMI surges to 20-month high in November
December 5, 2016
The Nikkei Hong Kong Purchasing Managers’ Index (PMI) released by IHS Markit rose to 49.5 in November, which was markedly above October’s 48.2 and the best reading since March 2015, when the index fell below the 50-threshold that separates contraction from expansion in business conditions.
The reading showed that operating conditions in Hong Kong deteriorated at the slowest pace in over a year in November. Volumes of output and new orders continued to decline, but both saw a milder decrease compared to October. Notwithstanding lower workloads, firms increased their staffing levels for the first time since March 2014, partially driven by company expansions. An increased workforce and reduced new orders allowed companies to work through their backlogs of work as well as to reduce their input buying. Despite the latter, pre-production stocks rose notably in November, as the reduction in demand outstripped that of inventory purchasing. Lower demand also enabled firms to improve their average delivery times. Regarding prices, businesses in the island saw another month of higher input costs, the result of strong wage growth and increasing raw material prices. Firms, however, managed to roll over these costs onto consumers in a bid to protect their margins.
Regarding the surprising uptick in staffing levels, Bernard Aw, Economist at IHS Markit, stated that, “The good news was an unexpected increase in employment, which was the first seen in 32 months, despite persistently weak business activity. Nonetheless, it is unlikely that the private sector will recover from the current downturn any time soon, given new property cooling measures and a soft global economic environment.”
Author: David Ampudia, Economist