Source: Markit Economics

Irish service seasonally Business Activity Index - - a PMI (Purchasing Managers' Index) measure 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 - - fell to 45.5 in September, from 46.7 in August, signalling that the pace of decline of business activity accelerated as the economic downturn continued. The latest fall was viewed as significant, and extended the current period of contraction to twenty months. Three of the monitored sectors posted falling activity during the month, while Financial Services recorded a modest rise.

Although activity fell further in September, the outlook improved, with optimism rising to its strongest since March 2008. Positive sentiment was largely based on an expectation that economic conditions will improve over the coming year, providing a boost for new orders.

Although the rate of decline of new business eased again in September, it remained marked, with clients still cautious when making purchasing decisions. In contrast to total new business, new export orders increased. September data marked the first rise in new business from overseas since December 2007. The rate of expansion was solid as service providers secured new foreign clients.

Consistent with the trend for activity in September, outstanding business fell at a sharper pace than in the preceding month, with a lack of new work the principal cause of the reduction. Work-in-hand has decreased in each month since September 2007.

As spare capacity remained an issue at Irish services companies, they reduced employment further in response. The nineteenth consecutive fall was substantial, and broadly similar to that seen in the month before. Decreasing salary payments was the principal reason for another drop in input costs at Irish services companies in September. The pace of reduction was considerable, despite easing to its weakest since January. Output charges fell, largely due to intense pressure from both competitors and clients during September. There were also reports that companies had passed on reductions in input costs to customers. Output prices have now declined in each of the past fourteen months.

Commenting on the NCB Republic of Ireland Services PMI survey data, Brian Devine, economist at NCB Stockbrokers said:“The fall in the services PMI highlights that domestic demand remains weak but confidence in the sector is improving. It is encouraging to note that not only is confidence improving but so to is new export business which grew for the first time since December 2007. We expect the cyclical recovery in Ireland to take hold in Q4 2009 but are cautious on the outlook for the consumer given the fall in employment, high levels of debt and lower levels of income. On this front it was disappointing to note that the employment component of the services PMI continues to decline at a sharp rate.”

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.