Rate of decline in services sector slows

ACTIVITY IN the services sector continues to decline, but at the slowest rate in almost two years, according to new data.

The NCB Services Purchasing Managers’ Index (PMI) rose to 48.3 in December from 46.8 in November, edging closer to the 50.0 mark that separates growth from contraction. Although any figure under 50 indicates a decrease, the rate of decline in the sector in December was at its lowest since February 2008.

A breakdown of the figures shows a solid performance by the export sector. For the fourth consecutive month, new export business at Irish service providers increased last month, with the sub-index which measures new export business rising to 54.7 from 52.7 in the previous month – its strongest performance since October 2007.

However, the growth in new exports was offset by a continuing decline in the level of new orders domestically, which fell for the 23rd consecutive month.

NCB’s Brian Devine said that a fall in new business continued to be the main factor weighing on the index. “The drag continues to come from the domestic part of the economy as international new orders actually expanded for the fourth month in a row” he said.

The data contained in the NCB Services Purchasing Managers’ Index (PMI) is derived from a survey of representative companies from the private services sector, including the hotels sector, post and telecommunications and financial services.

Yesterday’s December index revealed that employers continued to implement job cuts last month at a substantial pace, although the rate of job cuts slowed to the weakest in 17 months.

The financial services sector posted the steepest reduction in staffing levels during December. However, the sector posted a slight increase in activity during December, following a marginal reduction in the previous month.

The technology, media and telecoms (TMT) sector also saw a rise in activity, accelerating to its highest level since November 2007.

There was some indication that companies were becoming more optimistic about the economy. The survey recorded positive sentiment for the eighth successive month, while most respondents said that they expect the wider economy to improve during 2010. “However, clients remained cautious, and were therefore reluctant to commit to new expenditure” said Markit, which compiles the data.

Despite positive signs that activity in the services sector may be stabilising, Ireland still lags the European average.