‘Modest’ pick-up in services activity as input inflation eases

The services sector saw a “modest pick-up in momentum” last month after slowing to a crawl in November, as input price inflation eased and businesses continued to take on new hires, according to the latest AIB purchasing managers index (PMI) survey.

The wide-ranging sector, which incorporates everything from hairdressers to IT and media companies, expanded in December but was weighed down by the weak performance of the transport, tourism and leisure sub-sector.

Yet, the headline activity index reading for the month was 52.7, up from 50.8 in November, where any reading above 50 indicates that the sector is in expansion mode. While it was the first time the index had risen for five months, the rate of expansion in December was the second-weakest registered in nearly two years, according to the data, drawn from a survey of roughly 400 businesses.

The headline figure was buoyed by the strong performance of the tech, media and telecoms sector and the business services sector, AIB said, where growth rates were the fastest in three and six months respectively.

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However, the “near-stagnation” of the financial services sector in December – where input price inflation was the strongest compared to other sub-sectors – coupled with the fourth consecutive monthly decline in travel, tourism and leisure sector activity, anchored the index.

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“As has been the case for some months now, the services PMI in December continued to be weighed down by a very weak performance in the transport, tourism, leisure sector,” said Oliver Mangan, chief economist at AIB.

Overall activity in the sub-sector was hampered by declining levels of new business, outstanding business and exports, he said.

While a softening in input price inflation was evident across most sectors, “businesses continued to experience strong upward pressure” on costs in December, Mr Mangan said, “with firms referencing higher utility and labour costs” in particular. Firms continued to pass on these costs to customers, although the pace of increase in charges fell to its lowest level since August, “albeit this was still the 10th-highest on record”.

However, he said the data does indicate “some easing in inflationary pressures”.

On a brighter note, employment in the services sector continued to grow with companies raising headcounts for the 22nd month in a row in December.

AIB said the rate of job growth was “solid overall” but still at its weakest level in 2022, reflecting heightened anxiety about the trajectory of the economy and the prospect of a recession looming over the horizon in 2023.