Pace of services decline rises

The rate of contraction in the Irish services sector accelerated in November as the amount of new business reported by companies…

The rate of contraction in the Irish services sector accelerated in November as the amount of new business reported by companies continued to slide, according to the latest NCB Purchasing Managers’ Index (PMI).

The index dropped to 46.8 in November from 47.4 the previous month falling further from the 50 mark which
separates growth from contraction, and reflecting, what the report described as, "the weakness of the wider Irish economy".

Activity in the sector, which has fallen for 22 consecutive months, had shown signs of stablising in October with the rate of contraction slowing and the amount of new business even nearing growth territory.

November’s PMI indicated the sharpest reduction in activity over the month was in the transport & leisure category, while new business orders in the technology, media & telecoms division registered a rise.

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Despite the fall in activity, the report said, service companies remained optimistic that activity will pick up over the next 12 months.

“Respondents predict that wider economic conditions will improve, with demand increasing from abroad,” it said

The report noted that the contraction in new orders was registered despite the second successive monthly rise in new business from abroad as international demand showed signs of strengthening.

The NCB survey also indicated the rate of job cuts in the sector quickened in November, reflecting adjustments to lower workloads and the non-replacement of leaving staff.

Some 28 per cent of respondents signalled lower employment levels during the month. Employment has fallen continuously since March 2008.

Earlier this week, the PMI index for manufacturing in November rose as growth in output and new orders halted a 20-month of contraction period.

"The services PMI is more directly correlated with domestic demand than manufacturing output," said Brian Devine, economist at NCB Stockbrokers.

"It is not surprising that the services PMI has lagged behind the manufacturing PMI, which saw output expand in November, but fragile domestic demand has been dealt a further blow by the flooding that has besieged certain areas," he said.

The euro zone's service and manufacturing industries expanded at the fastest pace in two years in November, London-based Markit Economics reported yesterday.

The European Union's statistics agency also confirmed its earlier estimate that the combined economy of the 16 countries using the euro expanded 0.4 per cent in the third quarter, officially exiting recession after five quarters of falling output.

Britain's service sector grew more slowly than expected in November, following weak money supply data and a big drop in the manufacturing PMI index earlier in the week.