Services Growth Slowed In November, According To Latest AIB PMI Survey Data
Services growth slowed in November, according to the latest AIB Purchasing Managers' Index (PMI) survey data.
AIB stated, "Ireland's service sector companies recorded another marked rise in business activity in November, according to the latest AIB PMI® survey data.
"That said, the rate of growth slowed notably since October, as did the latest increase in new business, as reports of rising COVID-19 case numbers weighed slightly on business levels and expectations. The 12-month outlook was the weakest since March, and workforce growth also slowed. Inflationary pressures remained strong despite easing over the month.
"The headline figure is the Services Business Activity Index, a diffusion index calculated from a question that asks for changes in the volume of business activity compared with one month previously. The index is the sum of the percentage of 'higher' responses and half the percentage of ‘unchanged’ responses. The index therefore varies between 0 and 100, with a reading above 50 indicating an overall increase compared to the previous month, and below 50 an overall decrease.
"The Services Business Activity Index registered 59.3 in November, down sharply from 63.4 in October and signalling the slowest rise in Irish services output since April. The 4.2-point drop in the Index was among the largest registered over the survey history, outside the double-digit plunges registered in March-April 2020 and January 2021, suggesting a notable moderation in growth. That said, it remained well above its long-run trend level of 55.0 since the survey began in 2000. The 12-month outlook for activity remained strongly positive, but eased to an eight-month low.
"Growth rates weakened since October in all four sub-sectors. The most notable slowdowns occurred in Financial Services (58.0) and Transport, Tourism & Leisure (58.4) with both sectors registering the softest increases in activity since May. Business Services (59.0) saw the weakest rise in activity since April, while Technology, Media & Telecoms (60.8) led the growth rankings for the first time since August.
"The moderation in growth of total business activity reflected a similar slowdown in the rate of expansion in new work. New business rose for the ninth successive month, but growth slowed for the third time in four months to the weakest since April. A notable moderation was registered in the Transport, Tourism & Leisure sector. The latest anecdotal evidence from survey respondents suggested that rising cases of COVID-19 had undermined new sales at some companies. New export business rose at the slowest pace since June, partly driven by a contraction in the Transport, Tourism & Leisure sector.
"Although new work rose more slowly in November, demand growth remained strong overall and led to another rise in outstanding business at service providers. Having been the fastest in nearly 21 years in October, the rate of accumulation in backlogs slowed in the latest period but remained among the sharpest in the survey history. Higher incomplete workloads were partly explained by staff shortages and delays with suppliers.
"Service sector employment rose strongly in November, with growth remaining broad-based across the four monitored subsectors. The overall rate of job creation slowed to a six-month low, however, partly reflecting labour shortages as some firms reported difficulties filling vacancies.
"Cost pressures in the service sector remained severe in November. Input price inflation eased for the first time in seven months, but remained among the fastest registered in the 21-year survey history. Fuel, wages, energy, transportation and import duties were all highlighted as sources of rising costs, plus physical goods such as paper, chemicals, plastics and computer hardware. Subsequently, the rate of inflation in prices charged by service providers was the fourth-highest on record in November.
"Private sector output in Ireland rose for the ninth month running in November. The rate of growth was strong overall, but the weakest since April as new business growth slowed for the fourth successive month. Cost pressures eased from October's record, but charge inflation set a fresh series high.
"The Ireland Composite Output Index, which tracks activity in the combined manufacturing and services sectors, registered 59.3 in November, down from 62.5 in October. The latest figure signalled the slowest growth since April, albeit a marked expansion in the context of historical data.
"Growth weakened in both the manufacturing and service sectors, with the latter posting the more notable moderation since October.
"New business growth slowed for the fourth consecutive month since hitting a record high in July. The overall increase in demand was strong, but the softest since March.
"Input price inflation eased from October's record high in November, but was still the second-fastest over the series history. Manufacturers continued to register much stronger cost pressures than service providers.
"Average prices charged for goods and services rose at the strongest rate since the series began in 2002. This reflected a record increase in manufacturing output prices.
"*Composite PMI indices are weighted averages of comparable manufacturing and services PMI indices. Weights reflect the relative size of the manufacturing and service sectors according to official GDP data. The Composite Output Index is a weighted average of the Manufacturing Output Index and the Services Business Activity Index."
AIB Chief Economist Statement
AIB Chief Economist Oliver Mangan stated, "The AIB Irish Services PMI for November showed the sector registering another strong increase in business activity, though the pace of growth moderated with the rise in new COVID case numbers. The business activity index recorded a strong reading of 59.3 in November, but this is down from the levels of 63-64 seen in the previous three months. However, it is above the strong flash November Services PMI readings for the UK and Eurozone, of 58.6 and 56.6, respectively.
"This moderation in the pace of growth was evident across the main sub-components of the survey. There was a marked slowdown in the rate of growth of new business, including exports, with firms reporting that the rising COVID cases had dampened demand somewhat. Job creation, while still strong, eased to its slowest pace in six months. Meantime, although firms remain very optimistic on the 12 month outlook for business, this sub-index fell to an eight month low.
"The slowdown in the pace of growth in activity was evident in all four service sub-sectors in the survey. However, the four sub-sectors still performed strongly, with activity readings of close to or slightly above 60, and continuing good inflows of new business.
"Meanwhile, capacity pressures in services were again very evident in November. Outstanding work posted another strong rise, with firms reporting staff shortages and delays with suppliers. Not surprisingly then, businesses continue to face marked upward pressure on costs for fuel, wages, energy, transportation and physical goods. This is translating into higher prices charged to customers, which increased at their fourth quickest rate on record."
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