The Eurozone economy saw a third successive month of positive growth in March. The flash composite output index rose from February's final 52.0 to 54.1, more than 2 points above the market consensus and a 10-month high.

However, the headline improvement was wholly due to the strength of services where the flash sector PMI climbed from February's final 52.7 to a very respectable 55.6, also a 10-month peak. By contrast, its manufacturing counterpart fell from 48.5 to 47.1, well in recession territory and a 4-month low.

Within manufacturing, output (49.9) essentially stagnated and would have fallen but for a steep drop in backlogs. Unfilled orders in services climbed sharply and at the fastest rate since last May. Similarly, a second successive advance in aggregate new orders was entirely due to services and this masked an eleventh straight drop in manufacturing. Overall employment was similarly driven by services whereas job creation in manufacturing was broadly flat. Business optimism about the year ahead dipped from February's 12-month high but was still among the strongest seen over the past year and well above the levels recorded late in 2022. Sentiment slipped lower in both sectors.

Further improvements in vendor performance saw industrial input costs fall for the first time since July 2020. However, services reported a further steep rise, in many cases due to rising wages. Consequently, overall output prices continued to rise sharply although the inflation rate decreased further from the peak seen last year to hit its lowest mark since May 2021.

Taken at face value, the first quarter PMI data point to Eurozone GDP growth of about 0.3 percent. However, while manufacturing is still struggling, services have gained significant momentum and strength here is now adding to inflationary pressures. The ECB will be watching very closely. Today's surprisingly robust update lifts both the region's ECDI and ECDI-P to minus 2, showing that overall economic activity is now running much as expected.

After February's 48.5 for manufacturing and 52.7 for services, the consensus estimates for March's manufacturing is 49.0 and services 52.5.

The flash Composite Purchasing Managers' Index (PMI) provides an early estimate of current private sector business activity by combining information obtained from surveys of the manufacturing and service sectors of the economy. The flash data are released around ten days ahead of the final report and are typically based upon around 75-85 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 survey, produced by S&P Global uses a representative sample of around 5,000 manufacturing and services companies, the former including Germany, France, Italy, Spain, the Netherlands, Austria, the Republic of Ireland and Greece and the latter Germany, France, Italy, Spain and the Republic of Ireland.

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.