Services sector growth hits seven-month high in January

Growth in business activity in the services sector quickened for the third straight month to a seven-month high in January, spurred by the fastest rise in new work since December 2018.

The latest AIB Ireland Services PMI, which covers the month of January, shows employment growth also strengthened, and firms were the most optimistic regarding the 12-month outlook since July 2018.

The Business Activity Index rose further from last October’s 87-month low of 50.6 to 56.9 in January, with the 50 mark separating growth from contraction. The latest reading signalled the fastest rise in services output since last June.

That said, growth remained softer than the trend over the current sequence of expansion, which began in August 2012.

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The business services and the technology, media and telecoms (TMT) sub-sectors drove the uplift in activity growth.

Financial services activity also rose sharply, albeit at the slowest rate in three months, while transport, tourism and leisure activity increased moderately following a decline in December.

The volume of new business received by Irish service providers rose at the fastest rate since December 2018, with growth accelerating for the third consecutive month.

Firms reported an uplift in new inquiries and customers at the start of the year. All four sub-sectors registered sharp increases in new work, led by financial services, which posted a marked rise in international business.

Overall, new export sales across the services sector rose at the strongest pace since December 2018. There were reports of stronger UK business following the removal of Brexit uncertainty.

Rebound

The sustained rebound in new business growth raised pressure on operating capacity in the services sector at the beginning of 2020. Outstanding work rose at the fastest rate in seven months, with all four sub-sectors registering stronger increases.

The greater build-up in outstanding work occurred despite a stronger rise in employment.

The rate of job creation at service providers was faster than the long-run survey trend, but remained weaker than the average over the current sequence of workforce growth that began in September 2012.

Gains in staffing remained subdued in the business services and TMT sub-sectors.

Firms’ expectations for activity in 12 months’ time strengthened for the fourth successive month. Having been the weakest in nearly eight years back in September, sentiment at the start of 2020 was the strongest since July 2018.

Companies widely linked positive forecasts to the removal of Brexit uncertainty following the decisive UK general election.