Demand for services increasing pressure on business capacity

AIB Purchasing Managers Index suggests new business growth in the services sector hit a 10-month high — the fastest increase in outstanding work for over two years

AIB chief economist David McNamara: 'Higher activity was driven by new clients and marketing efforts... the volume of outstanding work rose at the fastest pace in over two years.' File picture

Strengthening demand for Irish services last month has led to “rising pressure on business capacity” as new business growth in the sector hit a 10-month high and the fastest increase in outstanding work for over two years, the latest AIB Purchasing Managers Index (PMI) shows.

During September, the PMI had a reading of 54.1, down slightly from the 55.4 recorded in August. The PMI is calculated from a question that asks for changes in the volume of business activity compared with one month previously. Any reading above 50 indicates growth compared to the previous month.

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

“Higher activity was driven by new clients and marketing efforts,” he said. “In that context, the volume of outstanding work rose at the fastest pace in over two years.”

The PMI said there were “signs of rising capacity pressures in the Irish services sector in September, with growth in the level of outstanding business for the fourth straight month”.

Employment in the sector expanded again following a decline in August. However, the rate of growth was modest in comparison to recent trends.

The four services sub-sectors registered positive activity growth last month. Technology, media, and telecoms (TMT) outpaced the other sectors, with more modest gains seen in financial services and business services.

TMT recorded a PMI reading of 58.3, while the transport, tourism, and leisure second had the next highest reading of 56.3. Business services and financial services recorded readings of 51.5 and 51.2 respectively.

Mr McNamara said this was due to “softer demand and muted jobs growth in both” business services and financial services.

Input price inflation picked up again in September but remained short of the highs of April and May.

“Cost hikes were driven by wage pressures as well as energy and supplier price rises. The rate of increase in prices charged also picked up to the highest level in nearly two and a half years,” Mr McNamara said.