Services sector expands for third month in a row

The Republic's services sector showed signs of continuing expansion last month, according to the latest Purchasing Managers' Services Index from NCB.

The business activity index for the sector rose for the third consecutive month in October, registering 54.6, the highest rate of growth since May. A rate above 50 indicates an increase in activity on the previous month.

The services sector has been in continuous expansion for 11 months, a trend suggesting that the domestic economy has remained insulated from the worst of the global downturn.

"I don't think there's any other way to interpret it," said NCB chief economist Mr Dermot O'Brien yesterday. Mr O'Brien contrasted the upward trend in the services index with sharp declines recorded in similar data for the manufacturing sector.

He said the divergence proved that domestic demand in the Republic remained buoyant, despite uncertainties in the foreign-owned manufacturing sector.

This picture has been reinforced over recent months, according to Mr O'Brien, by strong retail sales data and healthy VAT receipts.

The NCB analysis, which is based on information provided by 600 companies in the Republic, also points to continued optimism within the services sector. Business expectations registered 72.9 for the month, indicating a high degree of confidence.

Firms reported good growth in new business, which registered 54.1. While the rate of expansion is lower than in recent months, firms reported that a greater proportion of inquiries were resulting in actual sales than previously.

This trend was not borne out in employment numbers, however, which were cut in October for the fourth consecutive month. NCB's analysis suggests that panel firms continue to seek improved efficiency and lower cost growth.

In general, the data suggests that costs in the sector remain subject to strong upward pressure, with increased oil prices and insurance costs among the more problematic factors.

A sectoral breakdown of the data shows the highest rate of growth in October came in technology, media and telecoms services, reflecting the roll-out of new services. Transport, travel, tourism and leisure was the only sectors shown to be in decline, registering a rate of 45.6 amid poor operating conditions..