Source: Markit Economics

Irish service sector PMI (Purchasing Managers' Index) data for May, shows rate of contraction remained sharp, despite easing to its weakest since September 2008. The headline Business Activity Index rose to 39.5, from 32.2 in April. The decline was led by Business Services companies, where activity fell substantially.

Following pessimism in April, service providers forecast a slight increase in activity in twelve months’ time in May as they hoped for an improvement in the general economic situation over the coming year. That said, the level of optimism was historically weak.

Clients remained reluctant to commit to new expenditure in May. Consequently, new orders decreased considerably, despite the pace of reduction slowing during the month. New business has now fallen in each of the past sixteen months.

New orders from overseas also declined, although the rate of contraction was weaker than that for total new business. New export business fell at the slowest pace since last September.

For the twenty-first successive month in May, outstanding business decreased. Moreover, the pace of decline was substantial, despite easing to its slowest in eight months.

Job cuts in the sector continued due to a combination of responding to lower activity requirements, and attempts to cut costs. The latest fall was only slightly slower than that of the preceding month. Redundancies were recorded in each of the four broad sectors monitored by the survey.

Input prices decreased at the fastest pace in the nine-year survey history in May, extending the current period of falling costs to five months. Fragile demand for inputs enabled firms to negotiate price reductions with suppliers, while salary reductions also helped to lower average costs. Despite the pace of decline in output prices easing during May, it was still the third-fastest in the series history as increased pressure from both clients and competitors led service providers to offer further discounts.

Commenting on the NCB Republic of Ireland Services PMI survey data, Brian Devine, economist at NCB Stockbrokers said: “It is encouraging to note that the Technology, Media and Telecoms (TMT) sector saw no change in activity during May, ending a seven-month period of continuous contraction. The 3 remaining broad sectors (business services, financial services and travel, tourism, restaurants etc..) continued to suffer declines in activity but for the first time in a year, each of the four broad sectors posted optimism about future prospects. The most positive outlook was amongst TMT companies - the increase in confidence which has been registered for the last 3 months has now been confirmed by the fact that the sector is no longer contracting. The remaining three sectors all registered modest optimism in May, following pessimism in the preceding month. Both Transport & Leisure and Business Services firms forecast a rise in activity for the first time in eight months. Financial Services companies registered positivity for the second time in three months, after marked pessimism in April.”

The NCB Republic of Ireland Services PMI (Purchasing Managers’ Index) is produced by Markit Economics. The report features original survey data collected from a representative panel of around 300 companies based in the Republic of Ireland services sector.