Ireland's services sector continued to expand in September, according to a closely watched survey from AIB, even as the headline growth gauge cooled slightly. The AIB services purchasing managers' index (PMI) eased to 54.1 from a previous reading, but a key sub-measure showed new business growing at its fastest pace in ten months.
The PMI is a seasonally adjusted index where any reading above 50 signals expansion, while a figure below 50 points to contraction. A reading of 54.1 indicates solid, if slightly slower, growth in activity across Irish service firms, which include everything from financial services and technology to hospitality and transport.
What's driving the numbers?
The slowdown in the headline index suggests that overall business activity, while still expanding, lost a little momentum compared with the prior month. However, the acceleration in new business is a positive signal for the months ahead, as it often points to stronger demand and future revenue for service providers.
According to the survey, compiled by S&P Global, the pickup in new orders was the fastest in ten months. That suggests that underlying demand in the Irish economy remains resilient, even as businesses and consumers face higher borrowing costs and a global slowdown.
The services sector is a major pillar of Ireland's economy, employing hundreds of thousands of people and accounting for a large share of economic output. The country has also become a hub for multinational tech and pharmaceutical firms, many of which are classified under services in official data.
Broader context
Ireland's services performance comes against a mixed global backdrop. Elsewhere, services activity has shown signs of cooling. For instance, Japan's services growth cooled in September as an earthquake hit demand, and Australia's services growth also slowed as firms cut jobs and faced rising costs.
In the United States, the labor market has been a key focus for investors. A September US jobs report missed forecasts, which cooled expectations for further Federal Reserve rate hikes. That has helped lift stock markets on hopes that the Fed may soon pause its tightening cycle.
For Ireland, the resilience in new business is a welcome sign, but the slight easing in the headline index suggests that the pace of expansion is moderating. The European Central Bank (ECB) has been raising interest rates to combat inflation, and those higher rates are beginning to weigh on economic activity across the eurozone, including Ireland.
What it means for investors
For everyday investors, the AIB services PMI is a useful gauge of the health of the Irish economy, which in turn affects corporate earnings and stock market performance. A services sector that continues to grow, even at a slower pace, suggests that Irish companies are still seeing demand for their products and services.
The pickup in new business is particularly encouraging, as it may translate into higher revenues and profits for listed Irish companies in the coming quarters. However, investors should keep an eye on the overall trend, as a sustained decline in the PMI could signal a broader economic slowdown.
It's also worth noting that the services sector is not the only indicator investors watch. For example, commodity prices ticked up 0.6% in September, according to an ANZ index, which can influence inflation and input costs for businesses. And in the US, ETFs saw record inflows in September, showing that investors remain active in markets.
Overall, the AIB survey paints a picture of an Irish services sector that is still growing, albeit at a more moderate pace. For investors, the key takeaway is that the economy is not collapsing, but it is also not booming. That suggests a cautious approach may be warranted, with a focus on companies that can navigate a slower growth environment.
As always, it's important to remember that PMI surveys are forward-looking indicators, and actual economic data can differ. Investors should consider a range of indicators and not rely on any single survey when making decisions.
