Services sector continues to report staff shortages as confidence falls

Growth in sector falls for fifth time in six months and hits weakest rate in more than 18 months

Employment in the Irish services sector rose at a strong pace in September but companies continued to report staff shortages, while strength of confidence was at its the weakest in nearly two years, according to the latest PMI survey data from AIB.

The Services Business Activity Index fell to 54.1 in September from 54.7 in August. A reading above 50 indicates an overall increase compared to the previous month, while below 50 indicates an overall decrease.

Growth in the sector fell for the fifth time in six months, and was at its weakest rate in more than 18 months.

The index remained below its long-run average level of 55.1 in the latest period. The trend in activity over the third quarter as a whole was the worst since the first quarter of 2021.

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The latest figure signalled a 19th consecutive monthly increase in services output, albeit at the weakest rate over this period.

New business rose at the softest rate since March 2021. Fears around the impact of inflation on demand undermined the outlook, with firms’ 12-month expectations the weakest since late-2020.

Rates of input price and charge inflation remained among the highest on record in September.

For the first time this year, growth was not broad-based among the four sectors monitored. Activity in the transport, tourism and leisure (49.3) sector fell for the first time since December 2021, albeit only marginally.

This, coupled with a slower rate of growth in technology, media and telecoms (53.6), offset slightly faster expansions in financial services (58) and business services (55.1).

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The weaker rise in total business activity reflected a slower rate of expansion in new business. Demand for services increased for the 19th consecutive month, but at the weakest rate since March 2021.

There was an outright drop in demand in the transport, tourism and leisure sector, and much slower growth in financial services.

Overseas demand was notably weak during September, weighed down by declines in the business services and transport, tourism and leisure sectors.

Weaker improvement

Despite the weaker improvement in new work, there was a further build-up in outstanding business at Irish service providers. This was partly linked to ongoing staff shortages.

Pressure on capacity was greatest in the business services and technology, media and telecoms sectors.

Irish service providers increased their workforces for the 19th consecutive month in September as they sought to accommodate rising workloads.

The rate of job creation was strong but eased to an eight-month low, reflecting the recent moderation in new business growth and reports of difficulties filling some vacancies with suitable candidates.

The transport, tourism and leisure sector posted a decline in staffing for the first time since January.

The 12-month outlook for service sector activity remained positive in September, but the strength of confidence was the weakest in nearly two years and well-below the long-run survey trend.

Companies mentioned that forecasts had been hit by the current inflationary environment, especially regarding energy, and a shortage of disposable income, raising the risk of recession.

September data also revealed ongoing severe cost pressures facing service sector companies, linked to energy and wages in particular.

The rate of input price inflation was little changed from August’s six-month low, but still among the highest on record. Similarly, the increase in prices charged for services was the sixth-highest since the survey began in 2000.

Colin Gleeson

Colin Gleeson

Colin Gleeson is an Irish Times reporter