Ireland’s services sector continued to expand in October despite a renewal of input cost pressures – particularly in the tourism and leisure sectors – which resulted in “more cautious” hiring practices among firms, AIB said on Tuesday.
The bank’s latest purchasing managers’ index (PMI) reveals sustained growth in activity levels last month across the multifaceted sector, which includes everything from retail businesses to estate agents and financial services firms.
In October the headline index fell to 53.8 from 55.7 in September, based on a poll of around 400 services sector firms. Any reading above 50 indicates expansion in a given month while readings below that level mean activity has contracted. It means that services sector activity expanded last month, albeit at a slower pace in October than recent months.
David McNamara, chief economist at AIB, said the headline rate of growth – which was pacier than the UK and euro zone in the month – was “underpinned” by gains in outstanding work and new orders. “Export orders, in particular, grew strongly in October, linked to strengthening demand from Europe. The volume of outstanding work also rose at a solid pace on the month, albeit easing for a second consecutive month.”
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Margins, however, remained “under pressure” from “sharply rising input costs”, AIB said. The rate of inflation reported by services sector firms increased from a 43-month low in September, with survey respondents citing renewed fuel price and salary cost pressures.
The fastest rates of input price inflation were reported in the transport, tourism and leisure subsector, which also posted the slowest rate of overall growth in October, AIB said.
“Input cost inflation accelerated, following an easing in price pressures in September,” Mr McNamara said. “However, firms also continued to protect margins by raising prices for customers.”
Consequently, although the sector continues to add jobs the rate of job-creation eased to its lowest level in October since March 2021. Some service providers noted that margin pressures had led to the non-replacement of voluntarily departing staff, AIB said.
Mr McNamara said: “Employment growth eased overall, with an employment fall recorded in the financial services sector, offset by modest gains in the other three sectors.”
Meanwhile, business confidence among services firms remains high but moderated slightly in October from the previous month. Survey respondents pointed to impending product launches and improving economic conditions as sources of confidence, “offsetting concerns around the impact of global geopolitical uncertainty”, said Mr McNamara.
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