Private sector business activity performed much as expected in January. At 49.7, the flash composite output index was just a tick stronger than the market consensus, up from December's final 49.0 and in line with overall economic stagnation. It was also a 7-month high.

The monthly increase in the headline measure was wholly due to services where the flash sector PMI rose from December's final 49.2 to 50.4, similarly a 7-month peak and, significantly, back in positive growth territory for the first time since last June. However, its manufacturing counterpart slipped from 47.1 to 47.0 and continues to indicate significantly worsening market conditions. Within this, manufacturing output (48.4) was unchanged and so still below the 50-expansion threshold.

Aggregate new orders fell again but by the least in seven months and pre- and post-production inventories decreased for the first time in 16 and nine months respectively. Employment continued to expand and growth here hit a 6-month high on the back of strength in services. Indeed, overall business sentiment turned positive for the first time since August and was the highest since the Russian invasion of Ukraine. That said, it was still historically soft.

Meantime, reduced supply chain bottlenecks contributed to a further cooling in inflationary pressures. In particular, the rate of increase in manufacturing input costs saw its lowest mark since October 2020. However, output price inflation ticked down only slightly and, while touching its lowest point in almost a year-and-a-half, was still well above its long-run average.

In sum, the latest findings suggest that economic activity in Germany is beginning to stabilise. Even so, the first quarter is likely to be soft. Even so, at 6 and minus 1 respectively, the German ECDI and ECDI-P both indicate that economic activity in general is currently moving broadly in line with forecasters predictions.

Germany's PMIs have been in uninterrupted contraction since July and are expected to remain there in January, at a consensus of 47.9 for manufacturing and 49.7 for services.

The flash Composite Purchasing Managers' Index (PMI) provides an early estimate of current private sector business activity by combining information obtained from surveys of around 1,000 manufacturing and service sector companies. The flash data are released around ten days ahead of the final report and are typically based upon around 85 percent of the full survey sample. Results covering a range of variables including manufacturing output, employment, new orders, backlogs and prices 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 report also contains flash estimates of the manufacturing and services PMIs. The data are produced 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 purchasing managers' manufacturing indexes, 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.