Job losses in the service sector are expected to accelerate as the economic downturn deepens, according to the CBI’s latest Service Sector Survey.
The quarterly survey covers 195 companies operating in the service sector, across business and professional services, such as accountancy and legal firms, and consumer services, which include hotels, bars and restaurants, travel and leisure.
In the three months to November, firms reported steep falls in business volumes and profitability, as well as plans to scale back employment and investment.
Firms selling services to businesses saw the volume and value of their business, profitability and numbers employed fall at record rates - the steepest declines since the survey began in 1998. Companies are also cutting investment plans sharply as worries about future demand intensified.
Companies operating in consumer services saw profitability fall sharply for a third successive quarter. Business volumes and values also fell strongly, after the previous quarter’s small gains. A record number of firms cited the cost of finance as likely to limit capital expenditure in the next year. Although the workforce grew slightly for the first time in a year, businesses are predicting much larger cuts to their headcounts in the next quarter.
Ian McCafferty, the CBI’s Chief Economic Adviser, said: “Recent economic data has highlighted just how rapidly the economy is weakening. With consumers continuing to tighten their belts, companies operating in consumer services, such as leisure and personal care, are continuing to find trading conditions very challenging.
“With a record number of consumer services companies worried about the cost of credit, we need to see lending conditions improve as matter of urgency.
“As the recession deepens, firms are reducing business-to-business spending at a sharper rate, and as a result the decline in volumes and profits in business and professional services is expected to accelerate over the months ahead.
“So far, job losses have been relatively small across the whole of the service sector, but with firms predicting faster falls in volumes, values and profitability in the next quarter, we can expect to see significant job losses in the coming months.”
Looking at the consumer industry sub-sectors, travel services firms experienced a second successive quarter of falling sales and employment, with both expected to intensify in the coming quarter. Although costs per employee stabilised and selling prices rose during the quarter, this was offset by a sharp fall in the volume of business, which pushed overall profitability down for a third successive quarter.
The volume and value of business at hotels, bars and restaurants was almost flat in the three months to November. Profitability fell for a fourth successive quarter but not as sharply as earlier this year. Employment grew strongly for the first time in a year. But the picture is expected to worsen considerably in the next quarter with firms predicting faster declines in volumes, values and profits, as well a reduction in employment.
In the leisure and personal care sub-sector, the number of people employed fell at the fastest rate for two years and is expected to fall slightly faster in the next quarter. Business volume, value and profitability fell sharply during the quarter and further declines are expected in the next quarter. While costs per person employed rose strongly, firms did not pass this on to customers in the form of price rises.
Among business and professional firms, five out of six of the sub-sectors saw big falls in volumes and profitability in the quarter, with only telecomms/computing seeing little change.
Office and personnel services had a tough quarter on all fronts with optimism about the business situation falling sharply. Firms reported a surprising drop in average selling prices and expect further price falls in the next three months. Business volumes and values were well below normal for the time of year. Firms reduced their headcount and expect to cut numbers at a faster rate in the coming quarter.
Marketing firms saw profitability drop sharply for the second quarter in a row on the back of unexpectedly steep falls in business volumes and values. Costs and prices fell slightly and selling prices are expected to fall again more sharply in the coming three months. Marketing firms also shed staff in the last quarter and plan further cuts in the next quarter.
Telecomms and computing firms continued to show a degree of resilience compared to the other sub-sectors, with volumes of business and profitability stable. Costs per person shrank for the first time in five years and the number of people employed grew. But firms were gloomier about the business situation than they were three months ago and more worried about demand in the year ahead. The volume of business is expected to fall sharply in the next three months and firms are expected to cut staff numbers.
Key survey findings:
Consumer Services
The sharp falls in business volumes (a balance of -30% compared to +2% in August) and values (-29% compared to +6% in August) disappointed expectations after small gains in the previous survey. Firms see no let up in the coming quarter with volumes (-46%) and values (-48%) expected to fall more rapidly.
Profitability fell at a record pace (a balance of -41%) during the past quarter, as expected. The outlook for profitability in the next quarter is even weaker (-47%).
The numbers of people employed in the consumer services sector grew for the first time in a year (a balance of +9%) but this is expected to be followed by a much larger cut in staff numbers in the next quarter (-25%).
Firms are reducing their investment plans for the coming year with the cost of finance cited as an investment constraint higher than at any time in the survey’s ten year history (29%). Companies still do not expect to expand their businesses in the coming year (a balance of -52% compared to -53% in August) with lack of demand the biggest factor likely to limit business (+79%).
Business and Professional Services
The volume and value of business fell at record rates (a balance of -34% and -35%), with further steep declines predicted in the next quarter (-57% and -62%). That had a direct impact on profitability (-39%) with an even sharper fall expected in the next quarter (-54%).
Employment fell at a record pace (a balance of -18%) with this trend expected to accelerate in the coming quarter (-41%), while spending on training also declined (-21%).
Firms intend to scale back their investment spending significantly over the coming year with land and buildings, IT, vehicles, plant and machinery investment plans all at record lows. Uncertainty about demand is viewed as the biggest barrier to investment, cited by 86% of firms.
Looking forward to the year ahead, expectations for business expansion are negative and matched last quarter’s record low of a balance of -54%. Worries about the ability to raise funds as a constraint to business rose to a five-year high of 12%.