Thursday 21 September 2017

Services sector declines again as new business growth stalls

Thomas Molloy

Thomas Molloy

THERE was a slight decline in activity in the services sector in Ireland last month as new business grew only slowly and jobs were lost in the financial and leisure industries. The decline was mirrored by similar drops elsewhere in Europe and further afield.

The seasonally adjusted business activity Index, 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 49.7 in June from 48.9 in May, but that still signals that the sector contracted for the second consecutive month. A reading below 50 indicates contraction.

Companies remained optimistic that activity will be higher in 12 months than at present, with respondents indicating that they expect increased marketing activity to help boost demand over the coming year.

Staffing levels decreased in June, the second month in a row that employment fell. Company restructuring and cost-reduction efforts were mentioned by panellists that cut jobs.

"The employment index signalled contraction for the second month running," said NCB's Brian Devine.

"Two of the four broad sectors covered by the survey posted falling employment in June, namely financial services and transport and leisure. Financial services staffing levels decreased marginally, extending the current sequence of job cuts to nine months.

"The transport and leisure sector posted a reduction in employment for the eleventh month in the past year."

Technology, media and telecommunications "continue to be the leading lights" with employment expanding each month in 2012, he added.

The story was worse elsewhere. Britain's dominant services sector endured one of its worst months in the past three years last month despite cutting prices -- suggesting the country stayed in recession in the quarter that ended last weekend.

The latest bout of gloomy data solidified expectations that the Bank of England will restart the printing presses and support the economy with another round of bond purchases when it meets today.

The services index, which accounts for around three-quarters of the UK's economic output, sank to an eight-month low of 51.3 from May's 53.3, despite firms cutting prices and running down existing orders.

"The services economy saw one of its worst months since the recovery began three years ago, with the June survey showing signs of growth stalling.

"The services PMI probably cements the case for further stimulus from the Bank of England," said Chris Williamson, chief economist at data compiler Markit.

Elsewhere in the eurozone, surveys showed services and manufacturing output shrank in June for a fifth month as services unexpectedly contracted in Germany, adding to signs of a deepening economic slump in the second quarter.

All of Europe's biggest economies are now in recession or heading there and there is little sign things will improve soon, surveys showed.

Business surveys covering thousands of companies suggested the eurozone economy returned to recession between April and June.

"The PMIs are bottoming out at a level consistent with further contraction of activity in the second quarter," said James Nixon, chief European economist at Societe Generale.

Markit's Eurozone Composite PMI was 46.4 in June compared to 46 in May. The index has undercut the 50 mark that divides growth from contraction for nine of the last 10 months. (Additional reporting Reuters and Bloomberg)

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