Services sector growth 'remained muted' in May amid rising costs

The PMI reading for May stood at 50.8 — up from 49.7 recorded in April which was the first decline in the sector’s activity since early 2021. 

The services sector returned to modest growth during May but inflationary pressures remained high particularly in areas of transport, tourism and leisure which was hit hardest by fuel price spikes, the latest AIB Services Purchasing Managers Index (PMI) shows.

The PMI reading for May stood at 50.8 — up from 49.7 recorded in April which was the first decline in the sector’s activity since early 2021. The PMI is calculated from a question to firms that asks for changes in the volume of business activity compared with one month previously.

A reading above 50 indicates an overall increase compared to the previous month, and below 50 an overall decrease. The rate of growth in the Irish services sector was ahead of the flash Eurozone and UK PMIs at 46.4 and 47.9, respectively; but behind the US PMI, at 50.9.

Chief economist at AIB David McNamara said activity levels in the sector “remained muted” amid a contraction in outstanding business and “continued rising costs linked to current geopolitical tensions”.

"New business bounced back to growth in May following a contraction in April, while new export business also expanded once more during the month. However, the volume of outstanding work fell again in May, having declined in April, amid generally weak demand conditions.” 

The services sector is divided into four sub-sectors. The technology, media, and telecoms sub-sector recorded a reading of 54.1 — the highest of the sub-sectors — followed by business services with a reading of 53.8. Financial services also recorded growth with a reading of 52.2.

Mr McNamara said that the transport, tourism and leisure sub-sector “saw a further sharp fall in activity”, due to a surge in input prices, weaker new business and softer hiring. This sub-sector recorded a reading of just 40.1.

In terms of employment in the sector, Mr McNamara said there was “broad-based resilience in hiring activity in the services sectors overall, with a rise in employment growth to the fastest pace since January”.

Input cost inflation remained in line with a 40-month peak seen in April driven by fuel price spikes, as well as supplier and wage costs.

“However, the rate of increase in prices charged decelerated from the two-year high reached last month, implying some margin pressure for firms seeking to pass on these higher,” Mr McNamara said.

On firms' outlook, sentiment remained in the “positive territory”, according to Mr McNamara, improving compared to April.

“Confidence improved since April in all sectors except transport, tourism, and leisure, which recorded the weakest outlook for five-and-a-half years,” he added.