Growth in services sector rose to five-month high in June

Growth in the Republic's services sector rose to a five-month high in June, driven by stronger client demand and improved optimism, according to the latest Investec purchasing managers' index (PMI) report.

Like the manufacturing PMI on Monday, Wednesday’s Investec Services PMI Ireland report shows the rate of growth in activity has improved to a five-month high of 59.5. This is up from May’s 59.3 reading. A mark of 50 separates growth from contraction.

The improvement was driven by stronger client demand, with the new-business index reversing almost all of the moderation seen in the previous month.

This appears to have been mainly driven by domestic clients, as the rate of expansion in new export business cooled slightly in June, although the UK and United States were cited by some respondents as sources of new demand.

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Irish services companies responded to the increased demand by adding to headcounts at the fastest pace seen in 2018 so far, but despite these additional resources the sequence of growth in outstanding business extended into its 61st month in June.

On the margin side, there was another sharp rise in input costs in June, with higher energy, insurance and salary costs said by panellists to be behind this.

Firms were, however, able to pass on at least some of this increase by upping output prices once again.

Regardless, the profitability index was little changed in the three months to the end of June from May’s report, with the sequence of above-50 readings now stretching to 20 survey periods.

The forward-looking business expectations index strengthened in June, pointing to greater optimism by services companies.

“Allied to the increase in employment growth to the fastest pace in the year to date, it is clear that Irish services companies are upbeat on the prospects for the sector,” said Investec economist Philip O’Sullivan.

“Given the positive international backdrop, we share this optimism.”