Irish services sector expands again in September

Ireland’s services sector continued to expand in September, driven by substantial growth in new business activity.

According to Investec’s Services Purchasing Managers’ Index, a reading of 62.4 was recorded in September, compared to 62.1 in August, with the sector consistently recording growth for over three years.

“Substantial growth” in new business activity was reported during September, albeit at a slightly slower pace than had been recorded in August, with more than four times as many firms reporting an expansion of new business against those that posted a contraction in September.

Philip O'Sullivan, chief economist, Investec, said, "With more than four times as many firms reporting an expansion of new business against those that posted a contraction in September, it is clear that a broad improvement in activity is continuing".

Business sentiment ticked up for the second month running and was the highest since May and was stronger than the series average.

New export business also increased sharply in September, extending the current sequence of expansion to 50 months and some panellists reported that higher new exports contributed to growth of total new business.

Strong rises in new orders contributed to another increase in backlogs of work. The rate of job creation eased from August but remained sharp. The rate of input costs inflation picked up in September, largely due to rises in wages and salaries. Profits increased markedly during the third quarter of the year although at a weaker pace than had been seen in previous survey periods.

On the margin side, input prices rose for a 58th consecutive month in September. O’Sullivan attributed the latest uptick to higher wages and utility costs, “which more than offset the savings from lower fuel costs”.

“ There are continued indications that firms are able to pass on these higher costs to their customers, with output prices rising at their joint-fastest pace since May 2002, with the run of rising prices charged now stretching to 18 months,” he said.

While the rate of job creation eased from August, companies continued to increase their staffing levels in September.

Europe tells a different tale

It was a different story across the Euro zone, as business activity grew at its weakest pace in four months during September but in one encouraging sign for the European Central Bank, service firms raised prices for the first time in four years, surveys showed on Monday.

The data point to modest third-quarter growth of 0.4 per cent, survey compiler Markit said, and are likely to largely disappoint policymakers, six months into the ECB’s €60 billion a month quantitative easing programme.

Britain’s economy, which has been outpacing the euro zone’s, is also losing steam, with service industry growth at a 2-1/2-year low, likely rattling the Bank of England as its Monetary Policy Committee meets to discuss interest rates this week.

“The euro area is broadly as expected. For the region overall we are seeing the economy ticking along at a reasonable pace, it’s not blistering,” said Sarah Hewin, chief economist for Europe at Standard Chartered. “Of the two sets of releases the surprise has come from the UK. It is something of a concern going into the fourth quarter.”

Markit’s final September Composite Purchasing Managers’ Index (PMI) for the euro zone came in at a four-month low of 53.6, weaker than an earlier estimate of 53.9. In August, it was 54.3 but has now been above the 50 mark denoting expansion since July 2013 and there were tepid signs of inflationary pressure.

(Additional reporting Reuters)