Growth in services sector slows to four-month low in July

Companies raise output prices in response to cost pressures, a move that sees profitability index accelerate at its fastest pace in 2018

The Investec PMI report for July shows that confidence is highest in the technology sector

The Investec PMI report for July shows that confidence is highest in the technology sector

 

Growth in the services sector slowed to a four-month low in July, but has still been expanding on a monthly basis for six years. The latest Investec Services PMI report shows the sector moderated to a four-month low of 57.4 from June’s 59.5. The 50 mark separates decline from expansion.

The report also illustrates strong growth in demand, with the new orders and new export business components both pointing to substantial expansion in client orders.

In terms of overseas business, panellists mentioned the UK, India, France and the Netherlands as particular bright spots last month.

“Companies are, predictably, responding to this by adding to headcounts,” said Investec economist Philip O’Sullivan. “The employment index recorded its 71st successive above-50 reading. However, despite these additional resources, backlogs of work increased again, as they have in every month since May 2013.”

Turning to margins, input costs rose sharply once again last month, with panellists blaming higher beverage, fuel, insurance and rent costs for this latest increase.

A number of firms also indicated that salaries and wages had been raised due to a higher cost of living and efforts to retain staff.

Companies raised output prices in response to these cost pressures, a move that helped the profitability index accelerate at the fastest pace seen in 2018 so far.

The forward looking Business activity: Expected Levels in 12 Months’ Time index slowed to a four-month low, although nearly half of panellists expect to see output growth over the coming year.

Confidence

Unadjusted data for the segments of the services industry that are captured by the report (business services, financial services, technology, media, and telecom, as well as transport and leisure) show that confidence is highest in the technology sector.

“This has been the case now for almost a year and a half,” said Mr O’Sullivan. “Given that the sector has contributed 37 per cent of Dublin office take-up in the past five years, it is particularly encouraging to see such optimism.

“Taken together, this week’s PMI releases suggest that while the rate of growth in activity across much of Ireland’s private sector has slightly softened from the multi-month highs recorded in June, it remains substantial.

“We expect the Irish economy to grow by 5 per cent in GDP terms this year, keeping the country towards the top of the EU28 growth charts.”