Business sentiment hits almost two-year low as demand softens

Business sentiment fell to an almost two-year low in October on the back of softening demand and wider uncertainty, according to a report by Bank of Ireland.

The bank’s “economic pulse” index was recorded at 60.5 in October. The index, which combines the results of the consumer and business pulses, was down 10.1 on last month and 27.1 lower than a year ago.

While households appear to have taken some solace from the measures announced in Budget 2023, recent weeks have also seen an escalation of the war in Ukraine, and economic and political instability in the UK, adding to existing business woes and rattling firms.

Bank of Ireland chief economist Loretta O’Sullivan said: “The business pulse posted a 21-month low as firms contended with softening demand, fresh uncertainty and currency volatility. The large fall in business sentiment also dragged the headline economic pulse down in October to a two-year low. In contrast, the consumer pulse benefited from a budget bounce.”

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Retail and industry

At 64.2, the business pulse was down 13.6 on September’s reading and 26.1 lower than a year ago. The construction pulse was broadly unchanged on the month whereas the services, retail and industry pulses lost ground.

Softening demand and uncertainty were cited by firms in the services and retail sectors as key factors currently limiting their activity, while firms in industry were especially circumspect about their export order books.

More positively, the October survey found growth ambitions were steady, with half of firms still planning to expand their business in the next one to three years.

The consumer pulse stood at 45.8, up 3.7 on last month’s reading but 31.3 lower than a year ago. On the buying front, just 14 per cent considered it a good time to purchase big ticket items like furniture and electrical equipment, while some three in five are continuing to hold out on spending.

The housing pulse came in at 87.3, down 12.6 on last month and 31.5 lower than a year ago.

Supply chains

Over half of respondents now think house prices will increase over the coming year, which is down from about four in five in early 2022. Moreover, almost one-fifth are anticipating price falls, up from 4 per cent back in January.

Separately, the October PMI survey data from AIB revealed persistently weak underlying demand at the start of the final quarter of 2022 as new manufacturing orders fell for the fifth month running.

Output and employment both rose on the month, however, as firms made further inroads into backlogs. Input prices rose at a strong overall rate, albeit the slowest in 20 months as supply chains showed a further relative improvement and demand weakened.

The PMI registered 51.4 in October, little-changed from September’s 51.5 and signalling a further modest overall improvement in operating conditions in the goods-producing sector. Any figure greater than 50 indicates overall improvement of the sector.

Output, employment and stocks of purchases all expanded during the month, while suppliers’ delivery times lengthened further. New orders, the largest PMI component with a weight of 30 per cent, remained negative.

New business received by Irish goods producers fell for the fifth consecutive month. The rate of reduction remained solid despite easing slightly since September. Survey respondents reported that high inflation had deterred customers from placing new orders.

International demand remained weak, with new export orders falling the most since June. Although new business fell, Irish manufacturers expanded output for the first time in five months.