Services sector bounced back to February levels in December

Overall business sentiment in the services sector in December was the strongest since February, as companies grew more confident about the 12-month outlook on the back of positive vaccine developments, a report from AIB shows.

The bank’s PMI survey data marked an encouraging end to 2020 for the Irish services economy.

Total activity stabilised in the final month of the year, following a three-month downturn. Outstanding business increased for the second month in a row, and employment in the sector rose for the first time since February. However, new business fell further.

The index varies between 0 and 100, with a reading above 50 indicating an overall increase compared to the previous month, and below 50 an overall decrease.

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The Services Business Activity Index rose sharply in December to 50.1, from November’s five-month low of 45.4. The latest figure indicated a stable trend in the level of activity in the sector compared with one month previously.

Growth of business

Three out of four sub-sectors monitored registered growth of business activity. The fastest rate of expansion was signalled in financial services, (53.3, a 10-month high), followed by technology, media and telecoms (50.8, a two-month high) and business services (50.6, a two-month high).

Transport, tourism and leisure registered another sharp decline in activity, albeit the softest in four months (43.8). The level of outstanding business rose for the second month running in December, in a sign that overall business levels had begun to recover.

The rate of growth in incomplete work remained marginal, however, reflecting an ongoing drag from consumer-facing sectors. Transport, tourism and leisure registered another sharp fall in outstanding business, in contrast to further growth in the three remaining sub-sectors.

Growth in outstanding work occurred despite another reduction in new business during the month. Where new business declined, this was mainly linked to ongoing Covid-19 restrictions.

Consumer-facing sectors

Consumer-facing sectors again fared worst in terms of new business, with transport, tourism and leisure recording another marked decline. Overall demand softened only modestly compared with November levels, helped by a stable trend in financial services.

Although new business fell slightly in December, the 12-month outlook strengthened further as firms expected positive vaccine developments to allow business levels to approach normal levels by the end of 2021.

Overall, expectations were the strongest since February, but remained weaker than the long-run survey average.

With confidence improving and levels of outstanding business increasing, service sector employment grew in the final month of 2020. This ended a ten-month period of job shedding instigated in March when the first Covid-19 restrictions were introduced.

Job creation was seen in the technology, media and telecoms, as well as business services sectors, while a stable trend was evident in financial services. However, transport, tourism and leisure saw further job shedding.

Average input prices rose for the sixth consecutive month in December, linked to greater wages, fuel, insurance and utilities bills.

That said, the rate of inflation eased to a five-month low and remained below the long-run survey average. Meanwhile, prices charged by service providers rose for the third time in four months, albeit only marginally.