Services sector growth still slow as weak consumer demand takes its toll

DESPITE a slight increase, growth in overall business activity in the services sector slowed for the second consecutive month in August; with new business, employment, profitability and optimism amongst companies all taking a hit due to ongoing weak consumer demand.

The only thing that kept activity moving upwards was an increase in export orders. The latest edition of the monthly services purchasing managers’ index (PMI), from NCB Stockbrokers, shows that total new business, amongst services companies, declined for the fourth month in a row with August showing the sharpest fall for some time.

The subsequent fall in workloads led to a further fall in employment levels. While August saw only a modest reduction in job numbers, staff cuts have been a regular trend in the sector for all but one of the past 42 months.

The rise — albeit a marginal one — in new export business was one of the few real positives in the August survey; with new order increases coming from significant markets like the US, Britain and the Middle East.

“Exports are, once again, the main driving force behind the expansion in activity with new export business up. The familiar two-tiered story is evident again as domestic demand caused new business orders generally to decline, despite the rise in export orders,” noted NCB’s chief economist, Brian Devine.

Profitability levels amongst Irish services firms fell again, extending the current sequence of decline to 44 months in the process. Respondents also noted falling sales levels. This also led to a further deterioration in the level of optimism amongst companies — confidence levels, regarding business outlook, hitting their lowest level since last November. Any remaining positivity was linked with the expectations of growing business in export markets.

On the confidence issue, a number of those companies surveyed said they expected some increase in activity from the current low levels, over the coming 12 months, but seemed to suggested that any rise in business will only come about through exports.