Services growth slow but optimism at 14-month high

The latest data on the health of the services sector has revealed a strange coincidence with growth slowing to a 14-month low at the same time as optimism crept up to the highest levels seen in the same period.

Investec’s latest monthly services purchasing managers’ index (PMI) reveals that despite the drop off in the rate of growth, the sector continues to expand.

The headline PMI has fallen over the past four months to 60.6 — a level that still represents strong levels of growth.

“Services companies based in Ireland reported higher new business from both domestic and overseas clients,” Investec Ireland chief economist Philip O’Sullivan said yesterday.

“The new business index expanded for a 33rd successive month, but the rate of expansion in the new export orders index, while still sharp, slowed to its weakest pace since May 2013,” he said.

At the same time optimism in the sector climbed to a 14-month high amid indications that improving economic conditions are translating to increase in new projects.

More than six in 10 respondents forecast further growth going forward.

The UK also continues to be a key driver of growth in export orders aided by a fall in the euro against sterling.

Input costs continue to rise driven primarily by wage and salary increases together with higher utility charges, although cost inflation eased slightly from March. However, some of the benefit from the reduction in the value of the euro are being offset by more costly imports.

Firms were able to pass on at least some of these higher costs to end customers, as output prices rose for a 13th month running and at the fastest pace since June 2002,” Mr O’Sullivan said.

“Taken in tandem with last week’s Investec Manufacturing PMI Ireland release, it seems that the overall narrative is one of continued growth, albeit at a slightly slower pace, at the start of the second quarter of 2015,” he said.

Overall profitability in the sector increased further amid higher new work and rising output prices. The number of people employed in the sector increased in April with a particularly sharp rise seen over the past four weeks.

“Despite the increased resources, backlogs of work continued to rise during April, as they have done in each of the past 23 months,” said Mr O’Sullivan.


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