Overall private sector business activity was again surprisingly firm in May. At 54.3, the flash composite output index was 0.8 points above the market consensus and 1.1 points stronger than April's final 54.2. The latest reading was also a 13-month high.

However, once again the headline improvement masked a widening divergence between the goods producing and service sectors. For the former, the flash sector PMI slumped from April's final 44.5 to just 42.9, a 36-month low. By contrast, its services counterpart rose from an already solid 56.0 to 57.8, a 21-month peak. Manufacturing output (47.4 after 50.7) resumed its downtrend and hit a 6-month trough.

Aggregate new orders shrank as a hefty decline in manufacturing more than offset further progress in services and goods output would have fallen more steeply but for another decline in backlogs. On a brighter note, employment growth remained positive, albeit at a slightly slower pace than in April, but business sentiment deteriorated as confidence in manufacturing turned negative for the first time in five months.

Meantime, inflation pressures were largely restricted to services which saw an acceleration in output prices despite input cost inflation hitting a 2-year low. Factory gate prices posted their weakest gain in more than two years.

In sum, another mixed PMI bag in April leaves a very unbalanced economy. Growth is now all the more dependent on services where rising inflation pressures also remain a real issue. This cannot bode well for the medium-term outlook. That said, today's update puts the German ECDI at 6 and the ECDI-P at minus 2, both measures being close enough to zero to indicate economic activity in general performing much as expected.

Manufacturing in April posted its 10th straight month of contraction and the deepest yet, at 44.0 with no significant improvement expected for May where the consensus is 45.0. By contrast services, which have been over 50 for the past three months and which jumped in April to 56.0, is seen at 55.0.

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.