Sunday 22 July 2018

Services expansion eases slightly in March due to weather disruption

(Stock image)
(Stock image)
Ellie Donnelly

Ellie Donnelly

The rate of expansion in the services sector in March eased to a four-month low, partly as a result of snow disruption at the start of the month.

The headline Services Purchasing Managers Index (PMI) stood at 56.5 last month versus February’s 57.2 reading, according to specialist bank Investec's Services PMI index.

Any reading over 50 is deemed growth.

Notwithstanding the weather-related disruptions, the rate of growth in New Business was little changed last month, the report found.

This outturn seems to have been driven by overseas customers, Investec said, with the pace of expansion in New Export Orders quickening to the fastest in 2018.

In turn, this strong demand led to a sharp increase in Backlogs of Work, despite another uptick in Employment (continuing a 67 month series of above-50 readings).

Turning to margins and, despite the rate of growth in Input Costs having moderated to a six month low, it remains pronounced, with higher prices for raw materials and rising wages credited with the latest increase.

In order to counter this, companies are responding to this by upping Output Prices, as they have consistently done on a monthly basis throughout the past four years, but despite this, the Profitability Index tumbled to a four month low in March, according to the report.

As well as the Profitability Index index hitting a four month low, the forward-looking Confidence index slipped to a four month low last month, however, Philip O'Sullivan, economist with Investec, said that he would caution against reading too much into the Confidence score given that it may have been influenced by the weather issues.

"We are nonetheless pleased to see the breadth of optimism across the sector, with all four of the segments that are captured by this release (TMT, Financial Services, Business Services and Transport & Leisure) simultaneously posting above-50 readings in this index for a 70 successive month in March," Mr O’Sullivan said.

Coupling this index with the Investec Manufacturing PMI report from earlier this week and there appears to have been a slight moderation in growth across much of the private sector in the first three months of 2018.

"However, given the favourable economic backdrop we would expect to see a pick-up in activity as the year progresses," Mr O’Sullivan said.

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