Confidence in services sector at highest since 2018 as employment rises

Employment in the services sector rose for only the second time since the start of the Covid-19 pandemic last month, while confidence was at its highest since mid-2018 on the back of hopes that vaccinations will enable the lifting of lockdown restrictions.

The latest PMI survey data from AIB signalled a rebound in Irish services output in March, driven by renewed growth in new business and exports.

The overall index rose sharply to 54.6 in March, from 41.2 in February. This signalled the first expansion in services activity since December, and the strongest rate of growth since February 2020.

A reading above 50 indicating an overall increase compared to the previous month, and below 50 an overall decrease.

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The latest figure was only slightly below the long-run survey average of 54.8. Moreover, the 13.4-point rise in the headline figure at the end of the first quarter was the second largest on record since the survey began in 2000, behind only the 16.3-point gain in June 2020.

AIB chief economist Oliver Mangan said the jump signals “improved business conditions in the sector rather than activity returning to more normal levels”.

“Much of the services sector remains in lockdown, but the data suggest some businesses are now better able to cope with Covid restrictions.”

Cost pressures in the sector intensified further, however, while charges levied by service providers rose only modestly as firms attempted to attract new sales.

Three out of four monitored sub-sectors registered higher business activity in March. The strongest rate of expansion was in financial services, followed by business services and technology, media and telecoms respectively.

Activity in transport, tourism and leisure declined for the eighth month running, but at the slowest rate since last August.

New projects

Growth of overall business activity was spurred by a revival in demand, with firms reporting increased customer inquiries and the commencement of new projects held up by the pandemic.

New business rose for only the second time in 13 months, and at a much faster rate than the previous increase in August. This partly reflected improving export demand, which grew for the first time since February 2020.

Companies reported stronger sales to European and US markets, and also the resumption of UK business following a pause at the start of 2021.

In a sign of strengthening underlying demand, the volume of outstanding business in the Irish services economy rose solidly.

The increase was only the third since March 2020, and the rate of expansion was stronger than the 12-month trend immediately prior to the onset of the pandemic.

Service providers stepped up recruitment in March to support rising workloads. The workforce expanded for only the second time in 13 months, and at a rate broadly in line with the long-run survey trend.

Hiring also reflected improving sentiment among Irish service providers, with expectations for activity in 12 months’ time at a 33-month high in March.

Normal trading

Companies widely expected normal trading conditions and travel to resume over the coming year, enabled by vaccination programmes and the lifting of lockdown restrictions.

Input price inflation accelerated sharply in March to a 13-month high. Anecdotal evidence from survey respondents linked greater cost pressures to fuel, shipping, insurance, wages, raw materials and Brexit.

Firms raised their own charges to protect profit margins, but the rate of inflation was weaker than in recent years prior to the pandemic.