Source: Markit

Irish services companies reported a sharp rise in business in July however new orders growth slowed.

The  seasonally adjusted NCB 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 - - posted 55.7 in July, up slightly from 55.4. Furthermore, the fourth successive expansion was the sharpest since October 2007 as client confidence showed signs of strengthening.

Improving conditions within the Irish economy led to optimism among services companies again in July. Although dropping further from May’s thirty-one month high, the level of sentiment remained elevated.  Signs of strengthening conditions in the wider economy also led to an increase in new business. Despite rising for the fourth month running, the rate of new order growth eased to the weakest since April, and was slower than the long-run series average. July data pointed to a sharp slowdown in the rate of expansion of new export orders at Irish services companies, despite firms indicating that they had actively sought to gain new business from abroad. The eleventh successive rise was only modest, and the weakest in five months.

The slowdown in total new business growth was the key factor behind a much stronger depletion of work-in-hand in July. Outstanding business has been falling continuously for almost three years, and the latest reduction was marked.

Jobs were cut further during July, but the pace of reduction in employment eased for the third month running, and was the slowest in twenty-seven months. Panellists mentioned cost cutting as one of the reasons behind the latest fall in staffing levels.

Lower staff costs led to another fall in input costs at Irish service providers during July. Input prices have now decreased in each of the past nineteen months, and the latest reduction was slightly faster than that seen in the previous month. Output prices also declined in July, and at a considerable pace. The latest fall extended the current sequence of reduction to two years, and reflected intense competition for new business as client demand remained fragile.

Commenting on the NCB Republic of Ireland Services PMI survey data, Brian Devine, economist at NCB Stockbrokers said: "The NCB services PMI expanded for the fourth month in a row in July (55.7 from 55.4), primarily driven by domestic activity. New business orders slowed (52.1 from 54.0) on the back of a particularly marked fall in new service export orders in July (51.5 from 58.6). Export orders, which boosted the Irish economy in Q1 2010 have begun to slow in both the services and manufacturing sectors over the last number of months with domestic activity picking up the slack."

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.