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Business activity growth at 3 month low, according to AIB PMI survey

Business activity growth at 3 month low, according to AIB PMI survey

Business activity in Ireland’s service sector expanded at the slowest pace in three months during July, amid the first reduction in foreign demand since November 2016.

According to the AIB Services Purchasing Managers Index survey, overall new order growth eased to a three month low, as firms commented that Brexit uncertainty had negatively affected customer demand.

As a result of softer demand conditions, service providers increased their payrolls at the slowest pace in over six years.

Meanwhile, the rate of input cost inflation eased to a 16-month low driven by slower raw material price rises.

The headline seasonally adjusted Business Activity Index posted 55.0 in July, down from 56.9 in June and signalling the softest rise in business activity for three months.

At the sector level, Financial Services firms posted the fastest rise in business activity of the four monitored categories.

Central to the slower rise in business activity was a weakening of customer demand conditions both domestically and abroad. Overall new order growth, though solid, eased to a three-month low, whilst export sales declined for the first time since November 2016 and at the fastest pace since July 2009.

Panellists commented that they had observed a drop in UK business resulting from Brexit uncertainty.

According to the index, employment across the Irish service sector continued to increase during July. That said, the rate of job creation softened to the weakest since May 2013.

Service providers commented that they had taken on additional staff in anticipation of higher sales activity later this year. All observed sectors recorded a rise in workforce numbers except Transport & Leisure, which saw a fractional decrease in headcounts in July.

Further solid increases in new orders contributed to another rise in outstanding business in July. The rate of backlog accumulation was solid, but eased to the slowest in three months.

Work outstanding has now increased on a monthly basis since June 2013.

On the price front, the rate of input cost inflation moderated in July to a 16-month low. Nonetheless, cost burdens rose sharply, amid higher transport, fuel and staffing costs.

With input prices increasing at a slower pace, the rate of output charge inflation softened to a three-month low.

Looking ahead, business confidence was the lowest in three months, as Brexit uncertainty weighed on sentiment. Just under 43% of panellists were confident of a rise in business activity from present levels in 12 months’ time, linked to expectations of higher sales activity and new product developments.

Oliver Mangan, AIB Chief Economist, said business activity in the sector continued to expand at a strong pace in July. “Although, the headline index reading of 55.0 was lower than the 56.9 level registered in June and represented the slowest pace of expansion in three months. The Irish level is well above the flash services July PMIs of 53.3 and 52.2 for the Eurozone and US, respectively. This indicates stronger growth in the Irish economy.

“New orders growth was solid, however, the pace of increase did also slow to a three month low,” Mr Mangan said. “Meanwhile, export orders contracted for the first time since November 2016, with a decrease in orders from the UK owing to Brexit uncertainty acting as a headwind. The service sector continued to create jobs, albeit at the weakest pace since May 2013 amid softer demand conditions.”

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