Business activity expanded at its slowest rate in three months in May. The final composite output index weighed in at 52.8, down 0.5 points versus its flash estimate and even further short of its final 54.1 in April.

The negative revision reflected a less robust service sector where the 55.9 flash PMI was trimmed to 55.1. This now stands 1.1 points shy of its final April mark but still indicative of a solid performance during the month. New business expanded at a solid pace although growth was the slowest since February, with exports rising at one of the sharpest rates on record. Backlogs increased for a fourth straight month despite another advance in headcount that was much larger than its long-run average. Businesses remained optimistic regarding the year ahead outlook, but sentiment still weakened to its lowest mark seen so far in 2023. In part, this was attributable to a sustained high level of cost pressures despite cost inflation decelerating to its lowest rate since August 2021. Output price inflation was slightly higher than in April.

In terms of national composite output indices, the best performing member state was Spain (55.2) but Germany (53.9), Italy (52.0) and France (51.2) were also all above the 50-expansion threshold.

The final May data underlined the performance gap between manufacturing and services. To this end, inflation pressures are now largely concentrated in the latter and price developments in this area will be watched all the more closely by the ECB. Today's update leaves both the region's ECDI (minus 38) and ECDI-P (minus 28) well below zero and so indicative of economic activity in general underperforming market expectations by a significant extent.

No revisions are expected to the flash data.

The Composite Purchasing Managers' Index (PMI) provides an estimate of private sector output for the preceding month by combining information obtained from surveys of the manufacturing and service sectors of the economy. Results are synthesised into a single index which can range between zero and 100. A reading above (below) 50 signals rising (falling) output versus the previous month and the closer to 100 (zero) the faster is output growing (contracting). The report also contains the final estimate of the services PMI. The data are provided by S&P Global using 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.