The rate of growth in the Irish services sector in September slowed to its weakest levels since the beginning of the year, although firms remain “very optimistic” about business over the coming twelve months.
The latest Purchasing Manager’s Index (PMI) survey by AIB shows “solid growth” in the Irish services sector last month, despite inflationary pressures on businesses.
The index reached 54.5 in September, down from 55.0 in August and the lowest reading since January of this year. The PMI measures the health of the services industry in one number. Anything under 50 implies the industry is shrinking, while above 50 indicates expansion.
Despite an easing of growth, September’s figure extended a 31-month streak of expansion, and AIB chief economist Oliver Mangan said that the reading is consistent with good growth.
“This is in marked contrast to some of the big advanced economies. The flash Services PMIs remained in contraction territory during September in the Eurozone and UK at 48.4 and 47.2, respectively. Meanwhile, the US index slipped to 50.2,” he said.
As in August, growth was led by the technology, media and telecoms sector. There were also expansions in financial services and business services, while transport, tourism and leisure saw a third successive monthly decline.
The volume of new work received by service providers expanded in September, although the rate of growth eased to the weakest so far this year. International business continued to rise, but at a slower rate than total new work.
Outstanding business continued to accumulate for service providers in September, with the pace of expansion accelerating to the strongest since October 2022. Firms linked the rising backlogs to higher demand, as well as staff shortages.
Firms expanded their staffing again in September, although some businesses reported not replacing leavers due to cost pressures and shortages of suitably qualified candidates.
The AIB Ireland Services PMI is compiled by S&P Global, and surveys a panel of around 400 service sector companies.
Mr Mangan said that survey respondents were “very optimistic” about business over the coming twelve months, although concerned about high interest rates weighing on demand.
Input price inflation eased to a 29-month low in September, and charge inflation was the third weakest since mid-2021, but he said “stickiness in services inflation is evident”, as higher operating costs continue to be passed on in higher selling prices.
“Inflationary pressures remained elevated in the services sector in September. Input prices continued to experience substantial upward pressure, most notably from rising labour costs, insurance and fuel bills,” he said.