Hong Kong's Purchasing Managers' Index for May, compiled by S&P Global, rebounded to 50.4 from 48.6 in April, moving back into expansion territory.
This indicates that, while the improvement was modest, the business environment has regained positive momentum.
The reading for the same month last year was 49.0. The PMI uses 50 as the threshold between expansion and contraction, and the May rebound reflects a return to growth in Hong Kong's overall economic activity.
The data shows that the output index for May rose to 51.6 from 48.3 in April, while new order volumes also increased compared to the previous month, signaling an improvement in demand.
Analysis suggests that the PMI's return above 50, coupled with simultaneous growth in output and new orders, points to a mild expansionary force emerging in the Hong Kong economy by the middle of the second quarter.
Markets will be watching how external demand and the interest rate environment affect the sustainability of this recovery in the coming months.
Key Details of the Report
Business activity in Hong Kong expanded for the first time since March this year, but the growth was mild and fell far short of the uptrend seen at the beginning of the year.
Sector data revealed that the construction industry's output performance stood out in May, while the other four major sectors all saw production declines.
New orders returned to expansion territory, but the seasonally adjusted index for this component only slightly exceeded the neutral 50 mark.
The launch of new products supported order growth, but intense competition coupled with a sluggish local economy weighed on overall sales.
Increased demand from overseas markets for companies' goods and services contributed to the overall rise in new orders, with export orders showing actual growth and delivering the strongest performance in three months.
The decline in backlogs of work also moderated, with the rate of reduction being the slowest and mildest in the current three-month period of contraction.
Sufficient capacity existed to handle the current workload, leading firms to not fill vacancies left by departing staff, resulting in a decline in employment numbers, although the job cuts were not substantial.
Regarding input purchases, the rate of increase in May slowed compared to April.
The latest survey data indicates a modest rise in purchasing quantities, but relatively weak business activity growth and difficulties in sourcing and receiving materials led to only a slight increase in buying.
Furthermore, supplier performance deteriorated for the first time in three months, with reports citing shipping delays due to the Middle East conflict as a cause for extended delivery times.
On another front, purchasing inventories continued to accumulate, but the rate of expansion slowed to a 12-month low.
Cost and Pricing Trends
The rate of input cost inflation decelerated in May but remained elevated.
For rising operating expenses, firms commonly cited higher raw material prices, leading to purchase prices increasing at the fastest pace since December 2021.
Concurrently, staff costs rose moderately, with the rate of increase being the smallest since March this year.
In terms of selling prices, companies frequently passed on higher costs to clients by raising their charges, resulting in another sharp increase.
However, several firms also offered discounts to customers in an effort to stimulate sales.
Future Business Outlook
Looking ahead to the next 12 months, businesses remained pessimistic about the operating outlook in May, although the degree of pessimism softened to its lowest level in three months, yet remained pronounced.
Survey respondents indicated that their business outlook is heavily influenced by factors such as persistently high prices, tariff policies, and geopolitical risks.
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