Saturday 23 June 2018

Services outlook upbeat as wages inflate costs

Philip O’Sullivan of Investec
Philip O’Sullivan of Investec
Colm Kelpie

Colm Kelpie

Wage increases for those in the services sector helped push up costs for businesses last month, a survey has found.

Higher staff costs was the main factor leading input prices to rise in August as companies reported offering higher salaries to staff, according to the latest Purchasing Managers Index (PMI) for the sector.

Growth in the services sector increased marginally last month, with activity, new orders and employment all continuing to rise sharply in August.

New orders continued to rise sharply, with the rate of growth only slight weaker than that seen in July.

Philip O'Sullivan, economist with specialist bank Investec, said the outlook for the sector remains bright, even if confidence among firms appears to have softened.

"While still firmly in positive territory, the forward-looking Business Activity: Expected Levels in 12 Months' Time index has eased to its lowest since last September," Mr O'Sullivan said.

"This softening may reflect the currency moves alluded to above, but it should be noted that nearly eight times as many firms expect to see growth in activity over the coming year compared to those who anticipate a decline.

"All in all, while recent FX moves are unhelpful for the Irish economy, our core view remains that the improving trends across most of Ireland's key trading partners will be sufficient to deliver continued progress for the services industry here."

The headline seasonally-adjusted Business Activity Index ticked up to 58.4 in August from 58.3 in July.

Activity has risen on a monthly basis for more than five years, with higher new orders and improved customer sentiment reportedly behind the latest increase. Meanwhile, there was a less positive picture from data out of the UK.

While manufacturers are benefiting from increasing demand in Europe and beyond, the much bigger UK services sector grew at its weakest pace in nearly a year in August, according to the IHS Markit/CIPS services Purchasing Managers' Index.

Rising inflation and weak wage growth has curtailed British household spending and it is expected to grow at just half the eurozone's rate this quarter, and maintain that lacklustre pace into next year.

As the UK slows State agencies including Enterprise Ireland and Bord Bia are pushing Irish exporters to seek alternative markets.

Irish Independent

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