‘Tentative’ recovery in services sector continued in August

A "tentative" recovery in the State's services sector continued in August with new business orders increasing for the first time since February, data from AIB shows.

The services sector purchasing managers’ index (PMI) from AIB signalled that the sector remained in expansion territory, with a reading in August of 52.4. Anything above 50 indicates a sector in expansion while anything below 50 indicates contraction.

The business activity index rose the fourth month running from April’s low, although growth in the services sector remained weaker than the pre-crisis trend.

AIB chief economist Oliver Mangan noted that the recovery is still "very tentative". "The August reading of 52.4 is relatively low for the Irish services PMI – the index stood at 59.9 as recently as February," he added.

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Mr Mangan noted that the reading for the Republic is lagging behind the UK and the United States, although it was better than the rest of the euro zone.

Expansion was seen across only two of the four subsectors, down from three in July. The strongest expansion was in business services, followed by technology, media and telecoms businesses. A decrease in activity was registered in transport, tourism and leisure while financial services activity fell solidly.

Although the headline reading points to expansion, the data also shows that businesses are clearing existing work moreso than starting new work. “The rise in new business in August was insufficiently strong to generate pressure on business capacity, as the volume of incomplete work fell for the sixth month running,” AIB said.

Additionally, employment in the sector continued to fall, following a trend that began in March. Prior to that, job numbers in the sector had risen every month since September 2012.

Prices charged by service providers fell for the sixth month running in August with discounting linked to increasingly competitive markets and the negative effect of the Covid-19 pandemic.

But, the 12-month outlook in the sector was positive in August, despite slipping for the second month running. “Overall, the PMI data show continuing challenging business conditions in the services sector,” said Mr Mangan.

The data is compiled by IHS Markit from responses to questionnaires sent to a panel of about 400 service sector companies. Survey responses are collected in the second half of each month.