Source: Markit Economics

Irish service sector PMI (Purchasing Managers' Index) in October contracted the least since March 2008.

The seasonally adjusted NCB Stockbrokers' Business Activity Index - - which is based on a single question asking respondents to report on the actual change in business activity at their companies compared to one month ago - - rose to 47.4 in October, from 45.5 in September, signalling that while activity at Irish services companies continued to fall as demand remained fragile, brighter times are ahead.

Expectations of a recovery in wider economic conditions and a concurrent improvement in client sentiment led to further optimism regarding future activity levels. Confidence remained strong despite easing slightly from the previous month.

New orders neared stabilisation in October as aggressive sales activities secured new business. However, weak economic conditions meant that new orders still fell marginally over the month. Data suggested that the near-stabilisation of total new business was driven by foreign demand as new export orders increased for the second consecutive month. Moreover, the rate of expansion accelerated to its fastest for two years.

Outstanding business decreased sharply again in October as levels of new work were insufficient to replace completed projects. Backlogs have fallen continuously since September 2007.

Irish service providers continued to adapt their workforces to lower workloads in October, resulting in a further sharp fall in employment. However, the rate of job shedding eased to its weakest in thirteen months.

Lower salary payments combined with increased competition amongst suppliers led to another fall in input prices. Moreover, the rate of decline was steeper than in the previous month. Input costs have declined in each month since January. Output prices also decreased in October, extending the current period of reduction to fifteen months. Intense competition for new orders was the principal reason for the latest fall, while fragile demand also prevented companies from raising charges.

Commenting on the survey data, Brian Devine, economist at NCB Stockbrokers said: “Business activity continues to contract in the services sector but new export orders expanded for the second month running. The rate of expansion in new orders from abroad accelerated to its fastest in two years, and was also stronger than the long-run average for the series. Anecdotal evidence suggested that increased activity in both the Middle East and Eastern Europe had contributed to the rise in new export business in October. Domestic activity is likely to remain weak and is largely price dependent. The choice for many retailers appears to be cut prices and lose profit margin, or, maintain prices and lose volume.”

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.