Decline in services slows but jobs and wages have been cut
JOBS and wages in the services sector were cut again last month as the weak domestic economy continued to drag down the biggest part of the economy.
As services in Britain recorded strong growth, the Irish sector shrank again. But the decline was the smallest in almost two years, with the index from NCB Stockbrokers at 48.3, where a reading over 50 implies growth.
The global recovery is helping Irish service firms. Foreign new business grew for the fourth month in a row, but was outweighed by declining business at home. This is in line with general views on the Irish economy, which see it lagging behind until home consumption and investment catches up with improved exports.
Brian Devine, chief economist at NCB, said he still expected the economy to start growing before the end of March.
"The global story is looking extremely strong at the moment. That should have an impact before long, even if there are doubts about how sustainable it is," he said.
A UK index of service industries showed faster growth in December, with the gauge rising to 56.8 from 56.6 in November. But the US sector barely expanded, underscoring Federal Reserve forecasts that the recovery will be slow to develop.
The Irish survey of purchasing managers found that lower salary payments in December were a key reason behind the latest drop in input costs at Irish services companies. This was the twelfth successive monthly decline in costs and was a sharp fall, albeit the smallest since January last year.
The data pointed to another round of redundancies in the Irish service sector, although at the slowest pace in seventeen months. Service employment has declined continuously since March 2008.
According to respondents, the principal reason for the latest drop in staffing levels was continued restructuring of workforces in line with falling demand. There were also reports of employment being reduced to cut costs.
Outstanding business at financial services companies fell for the twenty-fourth consecutive month, although again the modest decline in December was the slowest since May 2008.
Firms cut their prices for the seventeenth month, and this trend showed less sign of slowing. Managers cited increased competition for new business, as well as pressure from clients to offer discounts. Profitability fell at the fastest rate in four months.