AIB PMI survey data for May 2022 points to sharp increases in business activity and new orders in the Irish service sector.
The AIB Ireland Services PMI is compiled by S&P Global from responses to questionnaires sent to a panel of around 400 service sector companies.
The sectors covered include consumer (excluding retail), transport, information, communication, finance, insurance, real estate and business services.
The panel is stratified by detailed sector and company workforce size, based on contributions to GDP.
The headline figure is the Services Business Activity Index, a diffusion index calculated from a question that asks for changes in the volume of business activity compared with one month previously.
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The index is the sum of the percentage of ‘higher’ responses and half the percentage of ‘unchanged’ responses. The index therefore varies between 0 and 100, with a reading above 50 indicating an overall increase compared to the previous month, and below 50 an overall decrease.
The Services Business Activity Index posted 60.2 in May, down from 61.7 in April but still pointing to a sharp monthly increase in output across the service sector.
AIB said activity has now risen in each of the past 15 months, though the latest expansion was the softest since January.
Respondents indicated that there were further signs of growth rates softening amid steep rises in input costs and selling prices. The rate of job creation picked up to a ten-month high, but outstanding business increased at an accelerated pace.
The Transport, Tourism & Leisure sector led growth of activity, new business and employment, quickening to a near-record pace.
Rates of expansion slowed in the Business Services, Financial Services and Technology, Media & Telecoms categories, with the softest increase posted in the Business Services sector.
AIB noted that the trend in new business was similar to that seen for activity, with growth remaining marked but easing from the previous month.
The ongoing release of pent-up demand left over from the pandemic reportedly supported the increase in new orders, with firms also able to generate further rises in new business from abroad.
A combination of increases in new business and insufficient staffing levels led to a further accumulation in backlogs of work during May, according to the PMI survey panel.
The latest rise was sharp and steeper than recorded in the previous month.
Service providers responded to greater workloads by expanding their staffing levels for the fifteenth consecutive month. Moreover, the rate of job creation accelerated to the fastest since July 2021.
Marked increases in employment were recorded across each of the four sectors covered by the survey. The sharpest rise was in Transport, Tourism & Leisure, while both Business Services and Financial Services signalled a faster pace of jobs growth than in April.
Severe cost pressures were recorded again in May, with the rate of input price inflation accelerating to a pace only just shy of March's survey record.
Around two-thirds of respondents noted a rise in input prices during the month amid widespread reports of increased fuel and wage costs. Inflation was most pronounced in the Transport, Tourism & Leisure sector.
In turn, companies also raised their own selling prices. The rate of inflation was the second-steepest in the series history, just behind April's record.
Oliver Mangan, AIB chief economist, observed that businesses continue to experience severe upward pressure on input prices, in particular, fuel and wage costs.
“This in turn is leading to higher prices being charged to customers. Indeed, the rate of growth in both input price inflation and prices charged was the second fastest in the 22-year history of the survey," said Mangan.
The bank’s reading of the trend lines is that a continued recovery from the pandemic and rising new business is expected to lead to further growth of activity over the coming year.
However, business confidence remains some way below that seen prior to the outbreak of war in Ukraine.
The Ireland Composite Output Index posted 57.5 in May, signalling a marked monthly rise in activity across the private sector. The reading was down from 59.6 in April and pointed to the softest increase in output since January.
Composite PMI indices are weighted averages of comparable manufacturing and services PMI indices. Weights reflect the relative size of the manufacturing and service sectors according to official GDP data.
Softer rises in activity were seen across both the manufacturing and service sectors, but growth was more resilient at service providers.
The rate of expansion in new orders slowed sharply, and was the weakest since March 2021. A softer rise in new business from abroad was also registered.
