Source: Markit Economics

Irish services activity rose at fastest pace since October 2007 as new order growth accelerated in June. The seasonally adjusted 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 - - increased for the third month running to 55.4 in June, having posted 52.4 in May. Moreover, the rate of expansion quickened to the fastest in thirty-two months.

Panellists indicated that higher activity largely reflected rising new orders, as confidence among clients improved. Irish service providers remained strongly confident that activity will be higher in twelve months’ time than current levels. Reasons for optimism included improving economic conditions and strengthening external demand.

As confidence among customers increased, new orders rose further during June. Consistent with the trend for activity, the rate of new business growth was the steepest since October 2007. New orders from abroad increased at a faster pace than overall new business in June. New export orders grew sharply, and at the steepest pace in thirty-four months as firms sought external business.

Although a number of respondents noted that spare capacity remained at their units in June, a similar proportion indicated that higher new orders had led backlogs to accumulate. Consequently, outstanding business was broadly unchanged over the month.

Staffing levels at Irish service providers fell again during June, extending the current sequence of job shedding to twenty-eight months. However, the pace of reduction eased for the second month running to the weakest since April 2008.

Input prices decreased at the slowest pace in the current eighteen-month period of decline in June. Anecdotal evidence suggested that reduced labour costs were the key factor behind the fall. Conversely, the relative weakness of the euro led to inflationary pressure on import costs. For the twenty-third consecutive month in June, output prices decreased. Furthermore, the rate of decline was substantial, having accelerated for the second month running. Panellists indicated that intense competition was the main reason for the latest fall in charges.

Commenting on the NCB Republic of Ireland Services PMI (Purchasing Managers' Index) survey data, Brian Devine, economist at NCB Stockbrokers said: "The rise in the services PMI to its fastest rate since October 2007 provides further evidence that the recovery in Ireland is taking hold. The services sector is the key sector in terms of employment creation and as such the rise in output in this sector is encouraging. It will, however, take some time before the rise in output filters through to net job creation. The employment component of the PMI continues to signal that more firms are shedding."