Growth in services sector fastest since January

The growth of business activity in the services sector accelerated for the second month running to the fastest since January, the latest Investec PMI report shows.

The report indicates that the rebound from the extreme weather conditions in March continued in May, with growth of business activity accelerating to 59.3. The 50 mark separates growth from contraction.

Activity has now increased in each of the past 70 months.

While the rate of growth in new orders cooled slightly from April, it remained sharp amid reports of strength in the wider economy.

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Overseas demand firmed last month, with the pace of expansion in new export business quickening to its fastest since January 2016, with a number of panellists noting higher new orders from UK clients.

“Helped by this healthy demand, services companies reported a further rise in backlogs of work, albeit not quite at the same level of growth as had been seen in April,” said Investec economist Philip O’Sullivan.

“Similarly, while the sequence of growth in the employment index now stretches to 69 months, the rate of increase in hiring activity was slightly lower than the year to date high that was posted in April.”

Turning to margins, input costs continued to rise sharply, with some panellists noting higher fuel prices while others mentioned increased staffing costs.

“Firms were able to pass on at least a portion of this pressure to end-customers, although we note that the rate of inflation in charges has moderated to a 19 month low,” said Mr O’Sullivan.

“In any event, stronger volumes helped to deliver the fastest pace of expansion in the profitability index since the three months to end-August of last year.”

While the forward-looking confidence index rose at a slower pace last month, Irish services firms “remain very upbeat”, with the index remaining above the series average.

“Around eight times as many respondents predict a rise in activity over the coming year as against those who anticipate a decline,” said Mr O’Sullivan.

Data for the components of the services sector that are covered by Investec’s report signal the breadth of optimism, with all four areas recording above-50 readings for a 72nd successive month.

The components covered are business services; financial services; technology, media, and telecom; and travel and leisure.

Taken together with last Friday’s Investec manufacturing PMI where the headline index improved to a three-month high, the May PMI reports suggest that growth in activity across much of the private sector “has rebounded after the weather”.