Investec Services PMI Ireland

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1 Embargoed until: 06:00 (Dublin) September 5th 18 Investec Services PMI Ireland Activity rises at sharper pace in August Investec T: E: W: Investec in Ireland, a member of the Investec Group, is a leading specialist bank and wealth and investment manager in Ireland and is based in Harcourt Street, Dublin 2. The Investec Group is a leading international, specialistbanking group, with headquarters in Johannesburg, South Africa. About PMI Purchasing Managers Index (PMI ) surveys are now available for over countries and also for key regions including the eurozone. They are the most closely-watched business surveys in the world, favoured by central banks, financial markets and business decision makers for their ability to provide up-to-date, accurate and often unique monthly indicators of economic trends. Tel: economics@ihsmarkit.com Website: markiteconomics.com This survey covers all private sector services in Ireland, excluding retail and wholesale, and provides timely data on an area of the economy that is not well covered by official figures. The data are derived from questionnaires sent to a representative panel of around 4 Irish private-sector service companies. Monthly data have been collected since May 00. Business Activity Irish service providers recorded a further sharp rise in business activity in August amid higher new orders and improving economic conditions. Moreover, the rate of expansion quickened from that seen in July. A number of respondents indicated that they had been busier than expected during the month (see page 2). Confidence Expectations of new order growth fuelled confidence among service providers that activity would increase over the coming year. Optimism remained strong in August, but was the lowest since October last year (see page 2). New Business Total new business increased sharply during August, with the rate of expansion quickening over the month. Respondents mainly linked higher new orders to improving economic conditions (see page 3). New Export Business Higher new orders from clients in the UK contributed to a rise in new export orders among Irish service providers. The rate of growth was marked, but slowed to a five-month low (see page 3). Backlogs of Work new business resulted in a further accumulation of backlogs of work during August, although the pace at which outstanding business increased eased to the slowest for a year (see page 4). Employment The rate of job creation quickened for the third month running to the fastest in the year-todate. Employment has now risen on a monthly basis throughout the past six years, with the increase in August well above the series average (see page 4). Input Costs Input prices rose at a sharp and accelerated pace in August, with the latest increase the steepest since April. Higher costs for staff and fuel were widely mentioned (see page 5). Charges Service providers responded to higher input costs by raising their selling prices, and to the greatest extent since March. Charge inflation was recorded for the fifty-third month in a row in August (see page 5). Profitability Profits continued to increase at a solid pace during the three months to August, with rising workloads and higher output prices reportedly behind the latest improvement. That said, the rate of growth eased to the weakest since the three months to April (see page 6). Business activity and employment Activity Summary of survey findings Current Previous Employment Index Index Change signalled Business Activity Sharp monthly rise Confidence Strong optimism (less so than July) New Business Sharp monthly rise New Exports Sharp monthly rise (slower than July) Backlogs of Work Solid monthly rise (slower than July) Employment Sharp monthly rise Input Costs Sharp monthly inflation Charges Solid monthly inflation Profitability Solid rise in profits (slower than July) The Survey The survey uses a methodology identical to the Investec Purchasing Managers Index of the manufacturing economy. The survey uses a panel of around 4 regularly participating companies to monitor trends in business conditions in the private sector services economy. The panel has been carefully selected to accurately replicate the true structure of the services economy. Data are presented in the form of diffusion indexes. These are a weighted sum of the positive, negative and no change replies and form a convenient single-figure summary of the data. Diffusion indices vary between 0 and 100 with a level of.0 signalling no change on the previous month. Readings above.0 signal an increase on the previous month. Readings below.0 signal a decrease. The greater the divergence from.0, the greater the rate of change signalled. Where possible, diffusion indexes are seasonally adjusted to take into account expected or normal variations for the time of year.

2 Investec Republic of Ireland Services PMI Business Activity: Current Q. Please compare the level of business activity at your company with the situation one month ago. 18 Mar Apr May Jun Jul Aug Growth of activity picks up in August Irish services companies recorded another monthly rise in business activity during August, extending the current sequence of expansion to 73 months. The rate of growth was sharp, and accelerated from that seen in July. The latest increase was stronger than the series average. Panellists often linked rises in activity to the securing of new orders amid improving economic conditions. A number of respondents indicated that they had been busier than expected during the month. Around 26% of panellists reported a rise in activity, compared with 16% that posted a fall. sector sees sharp rise in activity All four monitored sectors recorded marked increases in business activity during August. The sharpest expansion was at companies, where the rate of growth quickened to a three-month high. The rate of expansion also accelerated in the Technology, Media & Telecoms () sector, where the latest rise was the fastest since April. activity has now increased on a monthly basis throughout the past six years. August saw a marked expansion that was sharper than recorded in July. The only sector to see a slower rise in business activity during August was Transport & Leisure. The rate of growth was sharp, but the weakest in four months. Total service sector business activity (seasonally adjusted) activity activity A reading of the Business Activity Index above.0 signals an increase in activity compared to the previous month. Readings below.0 signal contraction. Business Activity Index by sector (seasonally adjusted) Business Activity: Expected Levels in 12 Months Time Q. Do you expect the level of business activity at your company to be higher, the same or lower than now in twelve months time? by sector (all unadjusted) 18 Mar.5 n/a Apr 73.8 n/a May 71.5 n/a Jun 72.9 n/a Jul 71.4 n/a Aug 69.1 n/a Business sentiment at ten-month low Service providers remained strongly optimistic that activity will increase over the coming year, although August saw sentiment drop to the lowest since October 17. Optimism generally reflected expectations that new orders would increase over the next 12 months amid predictions of improving business conditions. There were some reports of new work expected from the UK, but this was tempered by concerns around the impact of Brexit. More than 44% of panellists foresee a rise in activity over the coming year, against 6% that are pessimistic. optimism dips, but remains strong The sector remained by far the most optimistic of the four broad categories covered by the survey in August. This was despite a marked reduction in confidence over the month, with sentiment dropping to the lowest since October 17. In fact, all four sectors posted weaker optimism in August. The lowest sentiment was at companies, where confidence eased for the second month running and was the weakest since September 13. companies remained strongly optimistic that activity will increase over the coming year, with sentiment broadly in line with the previous two months. Meanwhile, Transport & Leisure confidence dipped for the fourth month running. TBusiness expectations: all services (not seasonally adjusted) = no change on current levels in 12 months time 100 Increasing optimism Increasing pessimism A reading of the Business Expectations Index above.0 signals an expected increase in overall business activity levels over the next twelve months. Readings below.0 signal contraction. Business expectations by sector (not seasonally adjusted) = no change over next twelve months Increasing optimism Increasing pessimism

3 Incoming New Business September 5th 18 Q. Please compare the level of orders/business placed at your company (whether already fulfilled or not) with the situation one month ago. 18 Mar Apr May Jun Jul Aug Further sharp rise in new orders As has been the case in each of the past 73 months, new business increased in the Irish service sector during August. The rate of expansion was substantial, and picked up from that seen in July to the joint-fastest since April. Growth was stronger than the series average. According to respondents, higher new orders were often reflective of improving economic conditions. As was the case with activity, some panellists reported having received greater volumes of new business than anticipated. Transport & Leisure leads growth of new business For the first time since September last year, the Transport & Leisure sector recorded the strongest rate of expansion in new business during August. New orders rose for the fifth month running and to the greatest extent since May 17. Financial Services also posted a sharp and accelerated monthly rise in new business over the month, with the pace of expansion well above the respective series average. new orders have now increased throughout the past six years, with the marked pace of growth seen in August faster than in July. The only monitored category to see a slowdown in the pace of expansion in new orders during August was. The latest rise in the sector was sharp, but the weakest recorded in 18 so far. Incoming new business: all services (seasonally adjusted) A reading of the Incoming New Business Index above.0 signals an increase in the volume of new business placed compared to the previous month. Readings below.0 signal contraction. New business by sector (seasonally adjusted) new business new business Incoming New Export Business Q. Please compare the level of orders/business from abroad placed at your company (whether already fulfilled or not) with the situation one month ago. New export business: all services (seasonally adjusted) 18 Mar Apr May Jun Jul Aug New business from abroad increases markedly August data pointed to another monthly rise in new export orders at service providers in Ireland, extending the current sequence of expansion to 21 months. The rate of growth was sharp, but eased for the third susccessive month to the slowest since March. Some panellists reported having received new business from customers in the UK, while others mentioned that the strength of the US dollar had helped them to secure new work from abroad. Exactly 23% of panellists reported a rise in new export orders, against 13% that signalled a fall. Slight rise in new export orders Although all four sectors saw new business from abroad expand during August, rates of growth varied markedly. The sharpest increase was at companies, where growth was substantial. A steep rise in new export orders was also recorded among companies, with the rate of expansion ticking up from that seen in July. On the other hand, saw only a modest monthly rise in new business from abroad in August, and one that was the slowest since April 17. The rate of growth also moderated at Transport & Leisure companies midway through the third quarter of the year, with the latest increase the weakest in four months. new export business new export business A reading of the New Export Business Index above.0 signals an increase in the volume of new business from abroad placed compared to the previous month. Readings below.0 signal contraction. New export business by sector (seasonally adjusted)

4 Investec Republic of Ireland Services PMI Business Outstanding Q. Please compare the level of outstanding business (i.e. work-in-hand but not yet completed) at your company with the situation one month ago. 18 Mar Apr May Jun Jul Aug Backlogs of work continue to rise Irish service providers saw backlogs of work increase during August. The rate of accumulation was solid, but eased from that seen in July to the weakest for a year. Outstanding business has now risen in each of the past 63 months, by far the longest sequence of expansion since the survey began in May 00. Anecdotal evidence suggested that higher new business had been the main factor leading backlogs of work to increase, while there were some mentions of project delays. sector leads growth of outstanding business Each of the four broad sectors covered by the survey saw backlogs of work increase during August. By far the sharpest expansion was recorded among companies, where the rate of accumulation quickened to a four-month high. As has been the case in each of the past 15 months, posted a rise in backlogs of work during August. The pace of increase was solid, but eased slightly to the weakest since last November. August data pointed to a marked slowdown in the rate of accumulation of backlogs, with the latest rise the weakest in six months. Meanwhile, outstanding business rose only slightly in the Transport & Leisure sector. The latest increase was the slowest in the current oneyear sequence of accumulation. Business outstanding: all services (seasonally adjusted) 25 backlogs backlogs A reading of the Business Outstanding Index above.0 signals an increase in levels of backlogs of work compared to the previous month. Readings below.0 signal contraction. Business outstanding by sector (seasonally adjusted) Employment Q. Please compare the number of people employed with the situation one month ago (treat two part-time as one full-time and ignore temporary labour). Employment: all services (seasonally adjusted) 18 Mar Apr May Jun Jul Aug employment employment Rate of job creation ticks up As has been the case on a monthly basis throughout the past six years, employment increased in the Irish service sector during August. The rate of job creation was considerable, having accelerated for the third successive month to the fastest in the year-to-date. Exactly 21% of panellists reported a rise in staffing levels over the month, compared with 4% that lowered employment. Where jobs growth was recorded, survey participants indicated that this was largely due to higher workloads. Widespread rises in employment, with record growth in Employment growth was recorded across all four monitored sectors in August, with the steepest rise in staffing levels seen at service providers. The rate of job creation in the sector was substantial. Moreover, employment growth hit a record high for the second successive month. Sharper increases in staffing levels were also registered in the and sectors. The steep rise in employment was the greatest since the end of 16, while the increase in was at a two-month high. The only category to see a slower pace of job creation in August was Transport & Leisure. Employment rose only slightly in the category, and at the weakest pace in five months. A reading of the Employment Index above.0 signals an increase in the number of people employed in services compared to the previous month. Readings below.0 signal contraction. Employment by sector (seasonally adjusted)

5 September 5th 18 Average Input Prices (Costs) Q. Please compare the average price paid by your company for all purchases, wages and salaries etc. with the situation one month ago. 18 Mar Apr May Jun Jul Aug Rate of input cost inflation accelerates Irish service providers recorded an above-average increase in input prices during August. The rate of inflation quickened for the third successive month and was the fastest since April. Panellists indicated that higher input prices were largely reflective of increasing costs for staff and fuel. There were also reports of rises in maintenance costs. Around one-quarter of respondents signalled an increase in input prices, against just 2% that posted a decrease. Steep rise in input prices at Transport & Leisure firms While input prices increased sharply across all four monitored sectors in August, by far the steepest pace of inflation was recorded at Transport & Leisure companies. Firms in the sector recorded the fastest rise in input costs since December 16. Transport & Leisure was the only category to see a sharper increase in input prices than in July. companies posted a substantial monthly rise in input costs during August, and one that was the same as that seen in July. Slower increases in input prices were registered in the and categories. firms recorded the joint-slowest rise in input costs since February, while the rate of inflation among companies was at a two-month low. Input costs: all services (seasonally adjusted) costs costs A reading of the Input Costs Index above.0 signals an increase in average input costs and prices compared to the previous month. Readings below.0 signal contraction. Input costs by sector (seasonally adjusted) Average Prices Charged Q. Please compare the average price charged by your company (e.g. prices charged per item or unit of time) with the situation one month ago. Prices charged: all services (seasonally adjusted) 18 Mar Apr May Jun Jul Aug charges charges Marked rise in output prices August data pointed to a further monthly rise in selling prices in the Irish service sector. Charges increased for the fifty-third successive month, and at the fastest pace since March. The latest rise in output prices was also sharp in the context of historical data. Anecdotal evidence suggested that higher output prices were largely a reflection of the passing on of rising input costs to customers. Three times as many respondents increased their selling prices during the month (12%) as posted a reduction (4%). sector registers sharp increase in charges Rates of output price inflation varied between the four sectors covered by the survey in August. The sharpest rise in selling prices was seen in the sector, where the rate of inflation quickened for the third successive month and was the fastest since March. A marked monthly increase was also registered in the category, where output prices rose for the second month in a row. The only sector to see a slowdown in the pace of inflation during August was Transport & Leisure, although charges still increased at a solid rate. The weakest rise in output prices was at companies, where charges increased only slightly. That said, the rate of inflation picked up from that seen in July. A reading of the Prices Charged Index above.0 signals an increase in the average price levied for service by service providers compared to the previous month. Readings below.0 signal reduced charges. Prices charged by sector (seasonally adjusted)

6 Investec Republic of Ireland Services PMI Profitability Q. Please compare the profitability of your company s operations with the position three months ago. 18 Mar Apr May Jun Jul Aug Solid increase in profits The three months to August saw a further rise in profitability in the Irish service sector, with profits up at a solid pace in the latest survey period. That said, the rate of growth eased to the weakest since the three months to April. Profitability has now improved in each of the past 22 survey periods. Some panellists indicated that increasing new work volumes had helped to boost profitability over the three-month period, while others mentioned rising output prices. More than 22% of respondents signalled an increase in profits, compared with 17% that recorded a decrease. Transport & Leisure profits broadly unchanged Three of the four broad service sector categories saw profitability improve over the three months to August, the exception being Transport & Leisure where profits were broadly unchanged. This ended a four-survey sequence of growth in the sector. The strongest improvement in profitability was at companies, where the rate of expansion quickened to the fastest since the three months to January. Meanwhile, both the and sectors recorded weaker rises in profits than in the previous survey period. profitability continued to increase at a marked pace, however, while Business Services registered only a slight rise. Profitability: all services (seasonally adjusted) = no change on previous three months profitability profitabilty A reading of the Profitability Index above.0 signals an increase in levels of profitability compared to three months earlier. Readings below.0 signal decline. Profitability by sector (seasonally adjusted) = no change on previous three months Comparisons of Service Sector and Manufacturing Sector Business Conditions Sharp and accelerated rises in output. Further increases in employment across both monitored sectors. Output/Business Activity.0 = no change on previous month Increasing rate of growth Grey line: Black line: Manufacturing Sector Service Sector Increasing rate of contraction The above chart plots the Irish Manufacturing Output Index and the Business Activity Index for Irish services. Rates of output growth accelerated across both the manufacturing and service sectors midway through the third quarter. Manufacturing production rose at the fastest pace in the year-to-date, while services growth was at a two-month high. Employment.0 = no change on previous month Increasing rate of growth Grey line: Manufacturing Sector Black line: Service Sector Increasing rate of contraction The above chart plots the Irish Manufacturing Employment Index and the Employment Index for Irish services. Employment continued to increase across both monitored sectors, with job creation remaining sharper among service providers. In both cases, staffing levels rose at fractionally quicker rates than recorded in the previous month. 6

7 September 5th 18 Key Economic Data GDP GDP (seasonally adjusted) - Annual Percent Change Consumer Prices (Harmonized) Harmonized Consumer Price Index - Annual Percent Change Source: CSO Ireland. The opening three months of 18 saw an acceleration in the rate of GDP growth in Ireland. Output was up 10.0% year-on-year, following a 5.4% increase in the final quarter of 17. Source: CSO Ireland. The rate of consumer price inflation in Ireland remained muted in July, but gathered pace. In fact, at 1.0%, the annual increase in prices was the fastest since February 13. Employment Employment - Annual Percent Change Interest Rates 3-month EURIBOR Rate Source: CSO Ireland. The second quarter of 18 saw a sharper rate of employment growth in Ireland. Employment was up 3.4% year-on-year, the fastest rise since Q1 17. Source: OECD. Eurozone interest rates remained negative during July. Averaging -0.32%, the 3-month EURIBOR was unchanged from that seen in June. Notes on the methodology This report is based on data compiled from monthly replies to questionnaires sent to a panel of companies in the Irish private service sector. The panel includes around 4 private companies from the sector. The panel has been carefully selected to accurately replicate the true structure of the services economy. For the purposes of the report, the Service Sector economy is divided into the following areas: Technology, Media & Telecoms () - Transport, Travel, Tourism & Leisure This report complements the Purchasing Managers Report for the Irish manufacturing sector, produced with the same technical applications used in the production of the United Kingdom report, and its data have become one of the tools used frequently by governments, economists in the public and private sector and financial institutions. Questionnaires are dispatched at mid-month, requesting comparisons of data with the situation one month previously. IHS Markit do not revise underlying survey data after first publication, but seasonal adjustment factors may be revised from time to time as appropriate which will affect the seasonally adjusted data series. Disclaimer Investec Bank plc (Irish branch) ( Investec ) has issued and is responsible for production of this publication. Investec Bank plc (Irish Branch) is authorised by the Prudential Regulation Authority in the United Kingdom and is regulated by the Central Bank of Ireland for conduct of business rules. Investec Bank plc is a member of the London Stock Exchange and the Irish Stock Exchange. This publication should be regarded as being for information only and should not be considered as an offer or solicitation to sell, buy or subscribe to any financial instruments, securities or any derivative instrument, or any other rights pertaining thereto (together, investments ). 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