The contraction in German manufacturing activity at the start of the year was a little shallower than originally thought and now less steep than at the end of 2022. The 47.0 flash sector PMI was revised up to 47.3, a 0.2 point gain versus the final December print albeit still well short of the 50-expansion threshold.

The headline index continued to be biased down by declining domestic new orders and a further reduction in output. High stock levels among customers also remain an issue and weaker demand from overseas further restrained production despite falling backlogs. Ominously, orders are still declining more rapidly than output. Even so, employment expanded for a twenty-third straight month, albeit by the least during the sequence. Looking ahead, business expectations turned positive for the first time since last February and have now improved for three consecutive months. That said, confidence levels were still subdued compared to those seen just before Russia's invasion of Ukraine.

Faster delivery times helped to accommodate another fall in input cost inflation which registered a 27-month low. However, factory gate prices picked up sharply and the inflation rate here accelerated for the first time in five months.

In sum, the latest findings provide some reason for supposing that the manufacturing sector is over the worst. Even so, it will probably struggle to provide any boost to GDP growth this quarter. At minus 6, both the German ECDI and ECDI-P indicate that economic activity in general is moving broadly in line with market expectations.

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.