Index shows services sector growth slows

Growth in the Irish services sector continued in August but at a much slower rate than earlier in the year, according to the latest NCB Purchasing Managers Index for the services sector. Employment in the sector fell off again as firms moved to reduce costs and satisfy growth of new business without having to recruit new workers.

Confidence among service industry firms that business will grow in the next 12 months was marginally stronger in August than in July, indicating that the majority of firms continue to anticipate strong growth in the months ahead. The business expectation index was 70.9 compared with 70.5 in July.

Of the 600 private sector companies surveyed, just 7.5 per cent said they expected the level of business activity to be lower in 12 months than at present while 63.2 per cent expected an improvement and 29.3 said they expected no change in conditions.

The overall Purchasing Managers Index for the services sector was 52.5. Although that was a slight improvement on the index of 52 seen in July, the August figure was well down on the levels seen earlier in the year. In March, April and May, the overall index ran at 59, 60.8 and 56.3 respectively.

NCB chief economist Mr Eunan King said the fact that the rate of growth was still much lower than earlier in the year was not a cause for concern. "What we have seen is that during the summer months things have cooled off a bit in Europe and that is reflected in these recent figures," he said.

He expects the key US economy to continue recovering, adding that current difficulties in the US represent a "temporary splutter" rather than any sustained difficulty.

The incoming new business index rose to 53.1 from 52.6 in July, ending a three-month period of progressively slowing growth of service sector demand. More than 73 per cent of firms surveyed said the level of orders placed at their companies had either remained static or increased in August.

In employment, the index was at 48.9, indicating firms laid off staff in the period.

However, the rate of lay-offs slowed from July when the index was at 48.1.

Just over 9 per cent of firms said they had more staff in August than July, while 80 per cent said staffing levels had remained static.