The better than anticipated economic numbers coming out of the United States in recent weeks has added new confidence to the outlook in the Hong Kong SAR, especially for a pick-up in the external trade sector.

There is already some evidence, however, that the local economy may have already turned the corner in February and may be on the verge of a return to positive economic growth as we enter the second quarter of the year.

Latest results from the Hong Kong Purchasing Managers' Index (PMI) shows that the Hong Kong economy expanded marginally in February, once the strong seasonal effect of the Chinese New Year holiday was accounted for.

The local PMI, modelled on those used for years overseas is a composite index designed to provide an overall view of business activity in the Hong Kong economy, and is produced by NTC Research of the U.K.

The seasonally adjusted Hong Kong PMI rose above the 50.0 no-change level in February to 50.3, signalling a modest expansion in local business activity for the first time since October 2000, when economic growth first began to slow.

This is a very marginal expansion, suggesting that the economy was essentially stable overall, but it is nevertheless a further sign that the local economy may be emerging from recession. This should show up in future GDP figures.

While output, orders and purchasing rose, their rates of increase were low, and their positive effect was partly offset by continuing falls in delivery times, and in particular a slightly sharper contraction in employment.

Detailed data show that the volume of new orders received by Hong Kong firms surveyed rose for the first time since September 2000, as modest improvements in business conditions made buyers less cautious about new spending commitments.

As a result of stronger order books, business activity at firms also rose for the first time in 16 months.

In marked contrast to this generally more optimistic picture, however, employment fell for the tenth month running, and at a faster pace. Not a single firm surveyed took on more staff during February, as firms remained cautious about business prospects, and continued to restructure their organizations and cut costs.

Similarly, firms were again able to reduce staff-related costs, though the latest reduction was the smallest since last August.

Continued strong competition for market share, together with customer demands for lower prices meant that charges by Hong Kong firms to clients fell for the eighteenth month running, though at the slowest rate since April 2001.

Meanwhile, prices of purchased raw materials posted their most moderate fall since May 2001.

The slightly positive result in the Hong Kong PMI coincided with a substantial improvement in a similar index in the U.S., after almost two years of slump.

The U.S. Institute of Supply Management said its Purchasing Managers Index, a gauge of manufacturing activity, surged to 54.7 in February from 49.9 a month earlier.

It was the first time since July 2000 that the index had climbed above 50 -- the level that marks break-even between rising and falling industrial activity.

It coincided with similar surveys for Europe showing less dramatic but still significant improvements.