Pace of services decline slowest in 8 months

Ireland's services sector shrank for the 16th successive month in May but the pace of reduction slowed to its slowest since last September as firms became a little more optimistic about the outlook for next year.

The NCB Purchasing Managers' Index rose to 39.5 from 32.2 last month while the measure of business expectations rose to 50.8 compared with 46.6 in April, on tentative hopes of an improvement in the economic situation over the next 12 months. Any reading above 50 indicates growth.

The UK and euro zone services sectors also showed signs of recovery last month, according to data published yesterday.

The Irish index is based on questionnaires to a panel of 600 businesses under four broad headings; business services; financial services; technology, media and telecoms; and transport, tourism and leisure.

“The most positive outlook was amongst technology, media and telecoms companies - the increase in confidence which has been registered for the last three months has now been confirmed by the fact that the sector is no longer contracting,” said Brian Devine, economist at NCB Stockbrokers.

“The remaining three sectors all registered modest optimism in May, following pessimism in the preceding month.”

Around a third of services firms expect business levels to improve over the next 12 months as the Irish and global economies recover although 31 per cent are more negative and believe the recession will last well into 2010.

For the 21st consecutive month in May the volume of outstanding business decreased while job cuts in the sector continued due to falling activity levels and efforts to cut costs.

Tourism and transport firms reported the highest level of job losses last month.

One positive factor last month was the ongoing fall in input costs, including wages and materials, which dropped at the fastest rate in the nine-year history of the index. Increased competition among suppliers was the most common reason.

Prices charged by the services sector also dropped last month due to weak demand coupled with pressure from clients for lower prices. Almost two out of five firms said their charges dropped in the month, the tenth successive month of declines.

The profitability of services firms fell again last month and has been dropping continuously since January last year. Around 45 per cent of companies said their profits were lower in May compared to three months ago.

Confidence among service sector firms across the eurozone rose to a 15-month high in May according to Markit’s Eurozone Services PMI.

Sentiment rose to 44.8 for May from 43.8 in April with economists saying if this momentum was maintained the sector would see a return to growth in August.

Britain's service sector returned to growth in May, raising hope its recession may be coming to end, as its PMI rose to 51.7 in May from 48.7 in April. This is its highest level since March 2008.

And although the US services sector shrank for the eighth consecutive month in May the rate of deterioration slowed.

Data from the Institute for Supply Management's nonmanufacturing index rose to 44 last month, its strongest reading since October 2008.

Additional reporting Reuters