The recovery in the services sector continued in August, according to the latest AIB Services PMI, but the rate slowed for the fourth time in five months as new business faltered.
The 12-month outlook also pulled back, due to concerns over high inflation and a potential recession. More positively, the rates of inflation in both input and output prices hit six-month lows, and employment continued to expand at a solid pace.
The headline figure is the Services Business Activity Index, which can range between 0 and 100, with a reading above 50 indicating an overall increase compared to the previous month, and below 50 an overall decrease.
It fell for the fourth time in five months to 54.7 in August, from July's 56.3. But this figure also signalled the 18th consecutive monthly increase in services output, even if this is the weakest rate since March 2021 when the sector reopened from lockdown. The index was also below its long-run trend level of 55.1 in the latest period.
Chief economist Oliver Mangan said: “The services PMI for August showed activity in the sector continues to expand at a solid pace, though it has lost some momentum.
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“The Business Activity Index fell to 54.7, which is the lowest reading since March 2021 and down from 56.3 in July and 55.6 in June. Activity in the Irish services sector, though, is holding up much better than elsewhere; the flash Services PMIs fell to 50.2, 52.5 and 44.1 in the Eurozone, UK and US, respectively, in August.
“Growth in new business at Irish services firms remained strong, although it slowed for the sixth month running. Meantime, new export business was the weakest since January. Firms attributed the slowing demand to rising inflation and weaker UK markets.
“Nevertheless, there was another significant increase in backlogs of outstanding business indicating that demand, though softening, remains quite strong. There was also a further marked rise in employment, continuing the trend evident year-to-date.
“Growth was broad based across all the four sub-sectors covered in the survey, although, Business Services lagged the others. Encouragingly, new business growth remained solid in all four sectors. Meanwhile, overall business confidence in services, though still quite positive, weakened somewhat from July reflecting concerns about rising inflation and a potential recession.
“Firms continued to experience acute upward pressure on input prices, but the rate of input price inflation eased to a six-month low. The higher costs are being passed on to customers, but similar to input prices, the rate of increase in prices charged also fell to a six-month low. So there are some signs that inflationary pressures may be starting to moderate somewhat.”
The loss of growth momentum in August reflected both a slower increase in services activity and a sharper reduction in manufacturing output, according to the AIB research. Goods production fell for the third successive month and at the fastest rate since February 2021.
The private sector labour force continued to expand in August, at a rate that remained historically strong despite easing to an eight-month low. For the third month running, service providers expanded workforces more quickly than manufacturers. Inflation in both input and output prices eased to seven-month lows in August, but remained elevated.
