Slowdown in business points to loss of momentum for services sector

Growth in the service sector slowed for the sixth consecutive month in October, with AIB’s chief economist saying a slowing of new business was of “particular concern”, pointing to a likely further loss of momentum in the sector in the coming months.

AIB’s latest purchasing managers index for services registered a reading of 52.6 in October. Any figure above 50 indicates expansion but the number is down from 54.5 in September.

The headline business activity index is compiled by S&P Global and tracks changes in the volume of business across a panel of 400 sector service companies.

AIB chief economist Oliver Mangan said the index showed “modest growth” but a “marked slowing in the pace of expansion in services”.

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“This is in line with the trend in most other economies. Indeed, the services PMIs are in contraction territory in the euro zone and UK, where the flash readings came in at 47.8 and 49.2, respectively, in October,” he said.

“Of particular concern” in the Irish data, he said, was a slowing in new business in October, with an outright contraction in new export business, the first such decline since February 2021.

“This points to weakening demand conditions and a likely further loss of momentum in the sector in the next couple of months,” he said.

Growth in October was limited to two of the four main sectors monitored – technology, media and telecoms (59.7) and financial services (57.7). There were declines in activity among companies in business services (48.7) and transport, tourism and leisure (43.2).

The scale of rises in jobs and new work in the October data were the weakest in more than 2½ years though they did signal a further easing of inflationary pressures.

Mr Mangan said that while inflationary pressures in services eased in October, they remained elevated. “Input prices continued to experience upward pressure from higher wages, fuel costs and utility bills. Higher operating costs are still being passed on to customers in higher selling prices, though the rate of increase was the second lowest in over two years,” he said.

Although demand growth nearly stalled in October, the 12-month outlook for activity improved slightly. Companies linked their confidence for 2024 to planned new products and services, recovering market conditions, a halt to the cycle of interest rate rises and reduced inflation.

AIB’s composite PMI output index – a weighted average of the headline services business activity index and the manufacturing output index published earlier this week – registered 49.7 in October.

This was down from 52.1 in September, indicating a marginal fall in activity, driven by an eighth successive monthly decline in manufacturing output.