Services sector PMI at 2-year high

Ireland's services sector came close to returning to growth in February for the first time in just over two years, as prices and wages fell to more competitive levels, according to new data published today.

The NCB Purchasing Managers' Index rose to 48.8 in February from 44.4 in January which is still below the 50 mark which separates growth from contraction but is the highest level since the index last exceeded 50 in January 2008.

The latest survey provides further evidence that deflation is ongoing in the economy with input costs falling for the fourteenth month in a row.

Lower salary payments were the main factor behind a drop in input costs in February, while competition among suppliers enabled service providers to negotiate discounts.

The index also that price reductions are being passed onto consumers with output prices falling at the their fastest pace in three months with anecdotal evidence also suggesting that intense competition is leading to lower prices.

The sub-index measuring prices charged fell to 37.7 from 38.6 in January.

"The survey provided further evidence that deflation is ongoing in the economy with input costs falling for the 14th month in a row," said Brian Devine, an economist at NCB Stockbrokers.

New orders contracted once again at 47.8 despite being buoyed by an increase in new export orders for the sixth month in a row. However, the pace of reduction eaased to a rate that was much weaker than the severe declines seen at the end of 2008 and beginning of 2009.

Staffing levels at services companies continued to decrease in February, extending the current period of reduction to two years. Furthermore, the rate of job cuts was sharp, having accelerated to the steepest in three months.

Meanwhile, 46 per cent of panellists surveyed  forecast a rise in business activity over the coming year, mainly due to expectations that wider economic conditions and client confidence will improve.

A number of panellists predict higher new business from overseas over the next twelve months while some firms also expect increased marketing activities in order to help to secure new orders.

Although sentiment dipped slightly in February from January’s twenty-two month peak and was weaker than the long-run series average, optimism among Irish services companies remained strong overall. Positivity has been recorded in each month since May 2009.