Decline in new orders sees services sector contract

Fri, Jan 6, 2012, 00:00

THE SERVICES sector contracted for the first time in a year in December, a new survey said, as new orders fell sharply.

The NCB Purchasing Managers’ Index blamed fragile economic conditions and poor business confidence for the fall to 48.4 from the 52.7 reading in November.

The rate of contraction in the services sector was “modest”, the survey said, with the the financial services sector registering the sharpest fall.

The telecoms, media and technology industry, in contrast, showed another rise on an unadjusted basis, growing for the fourth month.

The decline in new orders, which slipped from a reading of 52.6 to 47.4 last month, indicates further trouble ahead for struggling businesses.

“With new orders falling sharply, more contraction in the services sector can be expected in early 2012 as the domestic part of the economy remains extremely weak,” NCB chief economist Brian Devine said.

Companies cleared some of the backlog of work during the month, following an increase in outstanding business in December.

Confidence dipped to the lowest level seen since the EU-International Monetary Fund bailout was announced in November 2010, as companies anticipated difficult operating conditions due to the economic difficulties.

However, the export sector remained in growth, recording 52.1 for December, following the 52.2 reading in November.

“Once again, the export component remained above 50 and ultimately, like for the economy as a whole, this will be sufficient to outweigh the drag from domestic demand in 2012 to ensure a positive GDP number,” Mr Devine said.

He warned the two-tiered economy would continue, with employment likely to fall and gross national product expected to be flat.

Just 4 per cent of human resources professionals and business leaders are expected to focus on redundancies in 2012, as a new survey finds almost half of Irish professionals have a more positive business outlook for 2012 compared to 2011.

According to the survey, by recruitment specialist Morgan McKinley, 47 per cent of professionals working in financial services, professional services, manufacturing and IT are more optimistic about this year than last, while a further 11 per cent feel “significantly more positive”.

“Although there is still considerable uncertainty in the market and growth predictions are sombre, the major steps taken last year towards Ireland’s economic recovery have made many professionals feel that it is time to ‘move on’ and work towards a stronger and more stable 2012,” noted Karen O’Flaherty, chief operations officer with Morgan McKinley Ireland.

Moreover, the majority (58 per cent) of respondents to the survey expect salaries to remain the same within their businesses over the next 12 months, while 21 per cent predict salaries will rise, albeit modestly, by about 1 to 5 per cent.

“It is likely that any significant rises will be within fields where demand for professionals far outstrips supply, for example IT software developers, multilingual specialists or senior finance professionals,” Ms O’Flaherty said.

Meanwhile, 13 per cent of respondents feel salaries within their businesses will decrease by 1-5 per cent this year.

With regards to challenges, despite the ongoing economic uncertainty at both domestic and euro zone level, talent attraction is perceived to be the greatest challenge in 2012, say 23 per cent. This is followed by talent retention 19 per cent and skills shortages 16 per cent.