Retail sales extended its declining trend in March, falling 9.8% YoY during the month. On an aggregate basis, retail sales declined 12.5% YoY during the first quarter of 2016, confirming a persistent weakness in retail activities. The lacklustre retail performance continues to be highly correlated with inbound tourism, which is in a dire situation as visitor arrivals dropped 10.9% YoY in the first quarter. The weakening inbound tourism has also hurt the hotel industry, as hotel occupancy rates averaged only 83.3% during the first quarter (i.e. 2.3 percentage points lower than a year ago), while the average achieved hotel room rate was down 11.1% YoY during the same period (see Chart 1). These negative figures have served to increase pessimism in the overall business sector. As suggested in our previous article on 6 April (see here), employment dynamics would weaken further in the near term, particularly during the first half of the year, and the effects are slowly surfacing. The 0.1 percentage point month-on-month uptick in the unemployment rate in March appeared to be minor at first glance. However, as these numbers are reported on a three-month average basis, the figure implies that the unemployment rate actually went up by 0.3 percentage point in the month of March alone. By the same logic, as the unemployment rate for the retail, accommodation & food service sectors picked up by 0.5 percentage point and reached 5.1% in March, it may be a signal that lacklustre economic momentum has started to impact the employment market.
Such worries have been confirmed in the general reduction of working hours. While employed persons remained relatively stable at slightly over 3.8 million, the number of people who have worked below 35 hours per week increased by 133,100 over the last three months and reached 718,300 as of the end of March, representing 18.8% of total employment (see Chart 2). Although the underemployment rate only picked up slightly to reach 1.4% in March, suggesting that for some, working fewer hours may be voluntary, the evolution of this trend going forward is worth monitoring.
The Census and Statistics Department will announce a full set of GDP figures on 13 May, and more detailed analysis on the performance of Hong Kong’s economy will be available in the June issue of the Bulletin. As a preview, taking into consideration that the Index of Consumer Confidence compiled by the Chinese University of Hong Kong falling to 73.2 in March – the lowest level since September 2014 – and the Business Tendency Survey compiled by the Census and Statistics Department extending its consecutive declines to three quarters in 2Q2016 – the longest streak since the period between 4Q2008 and 2Q2009 – the sentiment should remain weak in the short term.
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