The decline in Eurozone business activity accelerated by more than expected in July. At 48.9, the flash composite output index was 0.7 points short of the market consensus, a full point below its final reading in June and indicative of the weakest period for economic output in eight months. The headline decline reflected weaker performances by both manufacturing, where the sector flash PMI fell from June's final 43.4 to a 38-month low of 42.7, and services, where its counterpart dropped from 52.0 to 51.1, a six-month low.

Aggregate new business continued to contract and at a more rapid pace than previously. Indeed, the decline here was the sharpest since last November and, worryingly, exceeded the decrease in output to a degree not seen since February 2009. A sharp fall in new orders in manufacturing was compounded by the first decrease in services in seven months. Excluding the Covid lockdown months, overall backlogs were also pared by the most since February 2013 with manufacturing posting the steepest drop since 2009. Service sector backlogs were down for the first time in half a year. Labour hoarding helped to ensure another increase in employment but the rise here was the smallest since February 2021 and reflected a second successive month of falling jobs in manufacturing and the least significant gain in services in five months.

Outside of the Covid period, July also saw the most marked reduction in manufacturing input buying since May 2009. Partly as a result, supplier delivery times improved at a pace not seen since 2009. Against this backdrop, business sentiment deteriorated to its lowest level since last November and so further below its long run average.

Meantime, input cost inflation fell for a tenth successive month and to its weakest mark since November 2020 while average output prices rose at the slowest rate for 29 months. Manufacturing saw another outright decline in prices while price increases in services were the smallest since October 2021.

The July update paints a fairly dismal picture of overall Eurozone business activity, albeit mainly due to the acute weakness of the manufacturing sector. More importantly, for the ECB, inflation trends appear to be moving in the right direction, although pressures in services remain firm enough to ensure another hike in the central bank's key interest rates this week. The region's ECDI (minus 30) and ECDI-P (minus 40) remain deep in negative surprise territory and so extend the unbroken period of underperformance that began back in early May.

After June's 43.4 for manufacturing and 52.0 for services, the consensus estimates for July's readings are 43.5 and 51.5 respectively. Manufacturing has been in contraction for the last 12 months straight with services in expansion for the last six.

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.