ENG-1988 — Page 86

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THE ECONOMY

The Labour Market Conditions in the labour market remained tight throughout 1988. Stronge demand for labour was experienced in virtually all sectors. Both the unemployment rate and the underemployment rate were at very low levels during the year. In the fourth quarter, the seasonally-adjusted unemployment rate was at an historic low of 1.3 per cent and the underemployment rate was 0.7 per cent. The corresponding figures in the fourth quarter of 1987 were 1.9 per cent and 1.0 per cent.

Manufacturing output, as measured by the index of industrial production, was five per cent higher in the first three quarters of 1988 than in the same period in 1987. This compares with an increase of 16 per cent for 1987 over 1986. Part of these increases in output were derived from a general improvement in labour productivity, given the substantial invest- ment in plant and machinery over the past few years. Shifting the more labour intensive production processes to China has also helped to increase labour productivity in the local manufacturing sector.

Between September 1987 and September 1988, manufacturing employment decreased by four per cent to 844 600, while employment in the service sectors as a whole increased by eight per cent to 1 264 800. Thus, the relative shift in employment from the manufactur- ing sector to the service sectors continued in 1988. Among the various service sectors, employment in the wholesale, retail and import/export trades increased by 10 per cent, that in restaurants and hotels by two per cent, and that in financing, insurance, real estate and business services by 10 per cent in September 1988 over a year earlier. Employment on building and construction (including civil engineering) sites rose by two per cent over this period. For the building and construction industry as a whole, employment (covering both site workers and non-site workers) increased by seven per cent.

The strong demand for labour allied to its limited supply led to a sustained increase in labour incomes. Between September 1987 and September 1988, nominal earnings rose significantly in the manufacturing sector and in most of the service sectors. For example, payroll per person engaged was higher by 14 per cent in manufacturing, by 20 per cent in financial institutions, by 13 per cent in the wholesale, retail and import/export trades, by 18 per cent in restaurants and hotels, and by 17 per cent in transport, storage and communication. After discounting the effect of inflation, the gains in real terms in many of those sectors were still significant. With an annual increase of over 20 per cent in nominal wages, construction workers generally enjoyed a substantial improvement in real income.

The Property Market

The demand for residential and commercial property was strong during 1988, and the take- up rates were at a high level. Trading in the property market was active during most of the year. Prices and rentals for most major types of property recorded significant increases over their levels in 1987. Increased household incomes and a general desire for home ownership contributed to the strong demand for residential flats, and this gave rise to speculative activities in some of the new residential developments. The market for shopping and office space, particularly in the prime locations, was tight. While the demand for shopping space was supported by a high level of retail sales to both local residents and incoming tourists, the demand for office space reflected the flourishing external trade and the increasing importance of Hong Kong as a major commercial and financial centre in the region. The demand for flatted factories, however, showed signs of stabilisation towards the end of the year.