October saw return to growth for services sector

BUSINESS ACTIVITY in the Irish services sector returned to growth last month after falling in September.

The latest NCB Services Purchasing Managers Index (PMI) rose from 48.8 to 50.9, with the 50 mark separating growth from contraction.

The new business orders index stayed below the 50 mark, but increased to 49.3 in October from 47.8 in September.

“New business from abroad expanded for the 14th month in a row,” said Brian Devine, economist at NCB Stockbrokers. “This was, however, insufficient to offset the weakness in domestic new orders,” he said.

“The prospects for domestic demand remain clouded. The focus must remain on correcting the fiscal situation and maintaining international credibility so Ireland can benefit from its advantages in the export sector,” he added.

While new business from abroad continued to rise, input costs continued to fall for the 22nd month in a row.

The index shows that jobs were cut again last month as service providers reacted to declining workloads.

Although service providers continue to predict a return to increased activity over the next year, optimism also declined in October.

Meanwhile, growth in the euro zone’s service sector lost steam last month as a slowdown in smaller economies and a downturn in Spain outweighed an upswing in activity in Germany, according to key private sector business surveys.

The Markit Eurozone Services Purchasing Managers’ Index (PMI), which monitors the performance of thousands of companies ranging from banks to hotels, fell in October to an eight-month low of 53.3 from 54.1 in September.

While that was revised up slightly from a flash estimate of 53.2 and still well above the 50 mark, the survey showed activity was likely supported by a reduction in backlogs of work.

“The fact that this growth was partly achieved through backlogs of orders falling for the first time in nine months suggests firms are struggling to maintain activity levels in the face of weakened inflows of new orders,” said Chris Williamson at Markit.

“If this continues, firms are likely to consider job cuts, meaning employment in the sector could soon start falling again.”

Markit said the composite PMI data suggested quarterly euro zone economic growth of 0.3 per cent, down from 0.6 per cent in the third quarter.

Eurozone growth peaked at 1 per cent in the second quarter.