Services sector shows sharp increase in business activity

The services sector expanded at its second-fastest pace since February 2007 last month, having quickened significantly since July.

Investec’s monthly Services Purchasing Managers’ Index (PMI) released yesterday, shows another sharp increase in business activity during the month, extending the period of successive expansion in the sector to over two years. Business from external markets helped fuel the continued expansion of the sector.

“The rate of growth in incoming new export business accelerated for the third month running to the fastest since April, with the run of above-50 readings in that index now stretching to 37 months,” said Investec Ireland chief economist, Philip O’Sullivan..

“Panellists cited the US and UK as key sources of new work from abroad,” he said.

All four segments of the service industry covered by the survey — business services; financial services; technology, media and telecoms; and travel and leisure — have grown simultaneously in each of the last seven months.

Consequently, backlogs of work for Irish services companies rose last month which in turn, led companies to increase the number of workers employed in the sector.

The rate of job creation quickened significantly in August, with three times as many firms adding workers than those reporting declines.

Firms, however, continued to experience cost pressures driven largely by wage increases.

“On the margin side, the rate of increase in input prices slowed from July’s 70-month high, but pressures from this source remain for Irish firms, with five times as many reporting higher input costs than those seeing a decrease.

“At least some of this has, however, been offset by a fifth consecutive increase in prices charged, [which] combined with volume growth extended the run of above-50 readings for the profitability index into a ninth month,” added Mr O’Sullivan.

Business sentiment dipped in the month to the lowest level recorded so far this year.

Despite the slight decline, however, firms remained largely optimistic. citing improving economic conditions both in Ireland and abroad as being likely to assist growth in the coming year.