Services sector hit by bad weather

The services industry, which covers all private sector services including both wholesale and retail businesses, contracted last month as the bad weather impacted on businesses.

The NCB services PMI fell to 47.4 in December from 50.8 the previous month. Any reading under 50 signals a contraction.

The weakness in activity and demand fed through to employment trends, with the sector continuing to shed jobs. The employment index fell from 48.7 to 47.8 last month with the current sequence of declines now extending to 34 months.

A representative panel of around 600 Irish private-sector service companies were questioned for the survey, which has been in existence since 2000. Most panellists cited adverse weather as the main reason for the drop in activity.

NCB economist Brian Devine cautioned against reading too much into December figures but to instead view December and January as one month when that data becomes available.

Meanwhile, separate European figures published today show that a slowdown in services activity in Ireland and Spain, contributed to an overall slowdown in the euro zone services sector.

The Markit Eurozone Services Purchasing Managers' Index (PMI), which measures the activities of thousands of businesses ranging from banks to restaurants, fell in December to 54.2 from 55.4 in November.

A breakdown of the data highlights a two-speed regional recovery as business continued to expand in Germany and France, but contracted in Spain and Ireland.

Nonetheless, the eurozone region's services sector still expanded for the 16th month in a row as the PMI stayed above the 50 mark, the level that divides growth from contraction. It was revised up from an earlier flash estimate of 53.7.

Survey compiler Markit warned that behind the still reasonably strong headline figure, the disparity between the strongly performing French-German core and smaller euro zone economies, which have had to impose tough austerity measures to slash high debt levels, worsened in December.

"Near-record growth in Germany and strong expansion in France contrasted with a collapse in growth in Italy to near-stagnation and increased rates of decline in both Spain and Ireland," said Chris Williamson, chief economist at Markit.

He pointed to weak domestic demand from households in Italy, Spain and Ireland as a key reason behind the growth divergences, linked to budget austerity measures and economic and political uncertainty.

"Overall, the data suggest that the euro zone will have grown by around 0.5 per cent in terms of final quarter GDP," said Williamson.

"But the scene is set for a two-speed single currency area as we move into 2011, with Germany growing at twice the euro zone average while some countries face double-dip recessions."

The euro zone employment index slipped to 51.9 in December from November's post-recession high of 53.2, although still showing the eighth month in a row of jobs growth among services companies.

The latest official statistics show euro zone unemployment rose slightly to 10.1 per cent in October from 10 per cent in September. Economists expect it to stay put at 10.1 per cent in November.

The relatively strong pace of activity in Germany and France helped boost euro zone business expectations for the next 12 months.

Expectations grew at a faster rate for the third month running in December, while order books
expanded at the quickest rate in four months, the survey showed.

Markit's Eurozone Composite PMI, which combines survey data from both the services and manufacturing sectors, held at 55.5 in December, unchanged from November and revised up from an initial estimate of 55.0.

While the composite reading was helped by a new orders index that rose to an eight-month high of 55.2 from November's 54.0, the survey's jobs component eased off from November's post-recession high.

Additional reporting: Reuters