Overall private sector business activity was again surprisingly firm in March. At 52.6, the flash composite output index was 1.6 points stronger than the market consensus and nearly 2 points above February's final 50.7. This was only its second reading above the 50-expansion threshold in nine months and a 10-month high.

However, the monthly improvement masked an even steeper contraction in manufacturing where the flash sector PMI fell from February's final 46.3 to just 44.4, a 34-month low. By contrast, its services counterpart rose from 50.9 to 53.9, a 10-month peak.

Manufacturing output (50.1) just about kept its head above water but orders fell sufficiently to ensure broadly flat overall demand. Backlogs were down as manufacturers sought to support production and this concealed a small rise in services. Job creation in manufacturing was unchanged from the modest pace recorded in February but hiring in services picked up strongly to drive the steepest overall rise in employment in eight months. Business optimism weakened slightly but solely due to manufacturing as confidence in services climbed to its highest level since February 2022.

Meantime, input costs in manufacturing declined enough to offset a strong rise in services and make for the steepest fall in overall costs since May 2020. Output price inflation remained historically high but still eased to almost a 2-year low.

In sum, the mixed March findings point to a probable return to positive GDP growth this quarter. However, manufacturing is clearly still struggling and mounting cost pressures in services will not be wasted on the ECB. Today's update puts the German ECDI at 15 and the ECDI-P at 21, both measures indicating a limited degree of outperformance by economic activity in general.

Manufacturing, at 46.3 in February, has been in significant contraction and only limited relief, at 47.0, is expected for March. Services, after February's 50.9, is seen at 51.1 in March.

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.