HSBC Hong Kong Purchasing Managers' Index (PMI), an indication of business conditions in the local economy, fell to 52.6 in June from 53.2 in May, signaling the slowest pace in the growth of business activity in Hong Kong since September 2009.

A PMI score greater than 50 indicates expansion of business activity, whereas a score less than 50 reflects contractions.

New business orders received by local companies increased for a 12th consecutive month in June due to on-going improvement in global economic conditions, according to companies surveyed. However, the growth momentum saw a slowdown during last month. For new orders from the mainland, companies in Hong Kong still reported increases, but the rate of growth slowed for a second consecutive month from the record high in April.

"Growth in new business inflows to Hong Kong eased from the previous month, resulting in a slowdown in the headline PMI for the second consecutive month. However, a continuously improving labor market should support solid expansion in Hong Kong's domestic demand," said Mark McCombe, chief executive of HSBC in Hong Kong.

The rise in overall new business boosted output in June, sustaining a modest employment increase within the city's private sector for a ninth successive month. The latest increase was only slightly lower than the 28-month high recorded in April.

Overall input costs faced by Hong Kong companies shot up in June, as a result of higher purchase prices and staff costs. Companies in Hong Kong reported a substantial rise in purchase prices during June, a sustained increase for the past 12 months. About 35 percent of companies surveyed said higher raw material costs drove input costs up. June data revealed a marked rise in staff costs faced by local companies. Salaries have swirled upward over each of the last 11 months, with the rate of increase accelerating since May.

Meanwhile, according to McCombe, "inflation is likely to rise in the coming months, despite a slower rise in output prices." June data showed that output prices rose for an eighth successive month, although competition for new businesses restrained the latest increase at the weakest pace in the sequence.

In other markets, China's May PMI figure dropped to 52.7 from 55.2 in April, the lowest in eleven months. The number, indicating only modest improvement, dampened the recovery prospects of the country's manufacturing sector. The picture in the US was a marked contrast, with business conditions in the manufacturing sector gathering steam. The headline PMI, although falling from April's 60.4 to May's 59.7, was the second-strongest reading since July 2004.

China Daily

(HK Edition 07/06/2010 page3)