Services sector sees fastest pace of growth in over three years

Growth driven by strong gains in new business and a recovery in the transport, tourism, and leisure sector, AIB Services Purchasing Managers Index shows

Stronger demand for services, as well as higher levels of work outstanding, drove an increase in staffing levels during the month. 

The Irish services sector saw the fastest pace of growth in over three years, driven by strong gains in new business and a recovery in the transport, tourism, and leisure sector, the latest AIB Services Purchasing Managers Index (PMI) shows.

During November, the PMI showed a reading of 58.5, up from the 56.7 recorded in October, the steepest rise in output since May 2022, and also marks the third straight month of increases.

The PMI is calculated from a question that asks for changes in the volume of business activity compared with one month previously. The index is the sum of the percentage of ‘higher’ responses and half the percentage of ‘unchanged’ responses.

Any reading above 50 denotes growth in the sector.

The rate of growth in the Irish services sector continues to outperform the eurozone, UK and US flash PMIs at 53.1, 50.5 and 55.0, respectively.

Chief economist at AIB David McNamara said new business grew at an “accelerating pace” in November, reaching the “highest level since April 2022, underpinned by a further solid rise in new export business”.

“Outstanding business also increased, reflecting the recent recovery in new client demand.” 

The services sector is divided up into four sub-sectors. Of these, financial services recorded the strongest growth in the month, with a reading of 60.9. The technology, media, and telecoms subsector saw the next largest increase at 60.3, followed by business services at 57.7.

Throughout this year, the transport, tourism, and leisure has seen slowing activity but November marked its first expansion since February, with a reading of 53.3.

“New business growth accelerated for the fourth successive month and was the strongest since April 2022. All four categories posted sharp increases in new business, led by financial services,” the PMI said.

New exports also rose at a solid pace during the month in line with levels seen in September and October.

Stronger demand for services, as well as higher levels of work outstanding, drove an increase in staffing levels during the month. 

“The rate of job creation was the fastest since March, and moved back above the long-run survey average,” the PMI said.

Financial services posted the strongest job growth. However employment gains in other sub-sectors were offset by an employment reduction in technology, media, and telecoms — the third reduction in staffing in the past four months.

Mr McNamara said the employment drop in technology, media, and telecoms sector comes “despite the rise in output and new orders in that sector”.

Cost pressures remained strong for businesses last month, but the rate of input price inflation eased to a three-month low.

“Higher wages, increased service and energy costs, insurance rates and pension costs drove input price rises for businesses. Transport, tourism, and leisure posted the fastest increase in input prices of the four monitored sectors, and financial services the weakest,” the PMI said.

With costs increasing, providers raised their prices to compensate. Charge inflation was at its highest level since January across the entire services sector.

The growth in business activity was accompanied by an improving outlook for the next 12 months among businesses. Expectations were the strongest since February, and all four sectors registered an improvement since October.

“Confidence recovered from October’s four-month low, reaching the highest level since February, led by robust sentiment in financial services and technology, media, and telecoms,” Mr McNamara said.