Underemployment fell from 4.3% to 4.2% from May to July, while unemployment rose from 8.6% to 8.7%.

With SARS under control, overall economic activity showed steady improvement.

Employment is stabilising in the tourism and consumption-related sectors, and the sharp unemployment upsurge seen earlier has tapered off.

Falls in the underemployment rate were concentrated in restaurants, the retail trade, education services, and amusement and recreational services, more than offsetting the increases seen in manufacturing, decoration and maintenance, hotels and sanitary services.

There are signs of a steady pick-up in a number of business sectors lately. The recovery is particularly noticeable in inbound tourism and related sectors such as airlines, the retail trade and business services.

In particular, the average daily passenger flow at HK International Airport has nearly returned to pre-SARS levels, reaching almost 80,000 in July.

The number of Mainland visitors in July more than doubled that in May. The average hotel occupancy rate soared to over 60% in July, when compared with only 20% in May.

60% more vacancies

The Labour Department recorded a substantial 60% increase in the number of vacancies at its Job Centres in July over June, from 16,222 to 26,126.

The short-term outlook sees the unemployment rate remain high due to the continued entry of fresh graduates and school leavers into the labour market. Their full absorption will hinge on more jobs being created upon a further pick-up in economic activity.

Increases in unemployment were seen mainly in the import/export, retail and hotel trades, and amusement and recreational services, and sanitary services, outweighing the falls seen in foundation and superstructure construction, restaurants and business services.

The underemployment rate likewise tended to ease, as some employees temporarily out of work returned to their jobs.

The total labour force fell about 8,500, from 3,519,500 in April-June to 3,511,000 in May-July. Total employment fell to a larger extent, by around 17,400 from 3,219,400 to 3,202,000.

The number of unemployed people increased about 9,000, from 300,000 in April-June to 309,000 in May-July. But underemployed people fell by around 2,000, from 151,000 to 149,000.

Unemployment stabilising

Commenting on the figures, Financial Secretary Henry Tang said the unemployment rate is beginning to stabilise and he believed that this moderation shows that our economy is beginning to show some signs of recovery.

"I hope we can realise this recovery and see improving figures some time soon," he said, adding he is cautiously optimistic that Hong Kong is now coming out of the unemployment peak.

"However, because unemployment figures are a lag indicator, it is difficult to say at this point in time whether next month when I announce the figures for June to August it will show an improvement."