Ireland’s services sector is seeing a continued slowdown in growth, with employee headcounts falling at the fastest rate in nearly five years, the latest AIB purchasing managers index (PMI) shows.
Services business activity index fell from 50.9 to 50.6 in August, marking the slowest pace of growth in 18 months.
Irish services sector underperformed its direct comparisons in the euro zone, US and UK, which respectively measured 50.7, 55.4 and 53.6.
The employment index has entered the red, with the measure of employment falling below the neutral point of 50 for just the second time in the more than four years since March 2021.
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“Overall, employment fell on the month, with the index falling to its lowest level since October 2020,” AIB chief economist David McNamara said.
He further noted that it was the first time since July 2020 that all four subsectors in the services index recorded lower staff levels, with the losses led by “sharp declines” in the transport, tourism and leisure sector.
The lower headcounts were explained by a number of factors including natural attrition, higher costs and aligning capacity with current workloads, Mr McNamara said.
The other three subsectors saw lower rates of headcount constriction, with “fractional reductions” seen in the business services and technology sector, as well as media and telecoms.
The PMI’s measure of new business grew during August, “at a modest, albeit accelerating pace” compared with July, Mr McNamara said. Outstanding business declined in August, following a moderate gain in July.
Against this backdrop, the index, measuring input prices, had its first hike in five months in August, with purchasing managers pointing to increases in wage costs, insurance, freight and IT expenditure as the sources.
Businesses appear to be passing on these cost increases to consumers, as the prices charged index showed its fastest rate of growth in the past three months despite being offset by a “a much slower round of price hikes” in transport, tourism and leisure.
On a sectoral basis, the technology, media and telecoms saw the fastest growth in activity, with business services and financial services seeing slower but still positive rates of growth.
Only transport, tourism and leisure saw a decrease in overall activity, its sixth in as many months. The industry also saw new business decrease, in a streak also running for six months.
“Despite weak current activity levels, firms in the Irish services sector remained optimistic on the prospects for expansion in activity levels over the coming 12 months, with sentiment ticking up slightly on last month,” AIB’s chief economist said.
Mr McNamara said businesses’ confidence was “linked to new products and services, expected economic growth and new technologies”.
