Hong Kong Manufacturing Activity Expands on Solid Domestic Demand

First Published Monday, 5th November 2012 05:46 am - © 2012 Dow Jones

-- PMI rises to 50.5 in October from 49.6 in September

-- Rise thanks to increased output and employment plus solid domestic demand

-- Inflationary pressures are creeping back

(Recasts the first paragraph; adds comments from HSBC in the sixth and seventh paragraphs, context in the third paragraph, data details in the fifth paragraph, and inflation and employment data in the penultimate paragraph.)

By Chester Yung

HONG KONG--Manufacturing activity in Hong Kong returned to growth in October after a one-month hiatus, helped by increased output and employment as well as solid domestic demand, HSBC Holdings PLC said Monday.

The HSBC Hong Kong Purchasing Managers Index edged higher to 50.5 in October from 49.6 in September. A reading above 50 signals expansion in manufacturing activity; a reading below represents contraction.

The PMI has fallen below 50 only three times this year, as local consumption has helped the economy weather the global slowdown in contrast to export-reliant regional peers. Hong Kong mainly manufactures consumer goods such as electronics, clothing and footwear, and food and beverages.

"New product launches and healthy domestic demand kept employers hiring through October, underpinning headcount increase and more than three years of uninterrupted wage growth; putting Hong Kong in good stead to rebound through the fourth quarter," HSBC Greater China economist Donna Kwok said.

The output index rose to 51.2 from 49.0, with about 20% of companies reporting increased business activity thanks to product launches, HSBC said. The employment index rose to 50.4 from 48.5, ending five months of job losses.

Consequently, inflationary pressures are creeping back, Ms. Kwok said.

"Stronger growth momentum is also allowing businesses to pass on rising costs at a faster pace" and this will create inflationary pressures, likely pushing inflation toward 5% by year end, Ms. Kwok said.

Inflation was 3.8% in September and 3.7% in August; unemployment was 3.3% in July-September and 3.2% in June-August.

The HSBC PMI is calculated from indexes measuring change in output, new orders, employment, suppliers' delivery times and stocks of goods purchased. It is based on a survey of about 300 companies prepared by Markit Economics.

Write to Chester Yung at chester.yung@wsj.com

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