German manufacturing activity was weaker than originally thought last month. The 47.4 flash sector PMI was trimmed 0.3 points although, at 47.1, it was at least still stronger than October's final 46.2 and a 3-month high.

The final data confirmed a ninth successive drop in new orders and this helped to secure another fall in output, albeit at the slowest rate since June. Backlogs were down for a sixth straight month and stocks of finished goods continued to increase. Employment expanded again but the increase here was the joint-smallest in 22 months. More optimistically, December saw a notable improvement in manufacturers' expectations about future output, with confidence picking up further from October's recent low to hit its highest level since last March. That said, it remained pessimistic overall.

Weaker demand and declining supply-side pressures saw input cost inflation decelerate markedly and to its lowest level in just over two years although it was still historically strong. Similarly, factory gate prices increased at the slowest rate in 22 months, but remained at a level unsurpassed in the series history prior to March 2021.

The ongoing contraction in manufacturing activity boosts the likelihood of negative GDP growth last quarter and most likely the start of recession in Germany. However, with today's update leaving both the ECDI (9) and the ECDI-P (23) in positive surprise territory, at least the chances are that the downturn will not be sharper than expected.

No revisions are expected to the flash data.

The Manufacturing Purchasing Managers' Index (PMI) provides an estimate of manufacturing business activity for the preceding month by using information obtained from a representative sector survey incorporating around 500 companies. Results are synthesised into a single index which can range between zero and 100. A reading above (below) 50 signals rising (falling) activity versus the previous month and the closer to 100 (zero) the faster is activity growing (contracting). The data are released by S&P Global.

Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the ISM manufacturing index in the U.S. and the Markit PMIs elsewhere, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures.

The S&P Global PMI manufacturing data give a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. And its sub-indexes provide a picture of orders, output, employment and prices.