Services sector sees fastest increase in activity this year in August

Employment growth in sector 'stalled', AIB Purchasing Managers Index shows

The transport, tourism, and leisure sub-sector recorded its first increase in activity in six months. 

The Irish services sector reported the fastest increase in business activity so far this year in August, as new business growth accelerated but employment growth “stalled”, the latest AIB Purchasing Managers Index (PMI) shows.

The PMI recorded a reading of 55.4 in August, up from the 55.2 recorded in July. The rate of growth in the Irish services sector was well ahead of the flash eurozone and UK PMIs at 51.7 and 52.8, respectively, but below the US PMI at 56.8.

The PMI is calculated from a question to firms 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 figure above 50 indicates an increase in the sector compared to the previous month.

Chief economist at AIB David McNamara said new business in the sector “continued to grow strongly”, following a dip in activity earlier in the year.

“Higher activity was driven by increased demand and new business wins. In that context, the volume of outstanding work rose steadily in August once again. However, despite a solid demand backdrop, employment fell marginally for the first time since March, following several months of rapid gains,” he said.

According to the PMI, August marked only the fourth time since March 2021 that employment at service providers had not risen.

Where firms recruited, this reflected increased demand, business expansions and new hires for compliance purposes.

“A common reason given for lower staffing were transitions from full-time to part-time roles, and retirees not being replaced,” the PMI said.

Mr McNamara said new export business expanded at a “modest pace” last month compared to July.

The services sector is divided up into four sub-sectors, all of which recorded growth last month.

The financial services sub-sector had a PMI reading of 58.2, with technology, media, and telecoms sub-sector the next highest at 57. Business services recorded a reading of 52.7, while transport, tourism, and leisure recorded its first increase in activity in six months, with a reading of 52.7 as well.

Technology, media, and telecoms, as well as business services, posted modest increases in staffing, while financial services registered no change. Employment in transport, tourism, and leisure saw job shedding for the sixth time in seven months.

Input cost inflation ticked up in August but remains well below the 40-month peak reached in April and May.

“However, cost pressures were driven by rising wages, fuel and transportation. The rate of increase in prices charged also picked up and it remains elevated in a historical context,” Mr McNamara said.

Transport, tourism and leisure posted the steepest rise in input prices, while financial services recorded the slowest.

Charge inflation rose for the first time since April.

In terms of the sector’s outlook for the next 12 months, Mr McNamara said business sentiment reached an 18-month high, with optimism “linked to new business, investments, marketing, planned expansions and new projects".

By sector, expectations improved in all areas except business services. Technology, media, and telecoms posted the strongest overall outlook, and transport, tourism and leisure the weakest.