Private sector business activity continued to contract in July and more sharply than anticipated. The flash composite output index weighed in at just 46.6, down from June's final 47.2 and nearly a full point short of the market consensus. The headline decline signalled the steepest drop in output since November 2020 with conditions worsening in both manufacturing and services.

The flash manufacturing PMI stood at 44.5, some 1.5 points below its final June mark and a 38-month low. Its service sector counterpart stood at 47.4, down from 48.0 and a 29-month trough. Overall new business inflows fell for a third consecutive month and by the most in more than two-and-a-half years. Moreover, output would have decreased more rapidly but for a second successive fall in backlogs. However, firms continued to add to headcount, albeit at the slowest rate so far in 2022. Looking ahead business confidence improved slightly in both sectors but remained strongly negative in manufacturing.

July saw a further easing in inflation pressures with the rates for input costs and factory gate prices declining to 28- and 27-month lows respectively. That said, a number of service providers noted rising wage bills.

Today's update points to a further loss of economic momentum at the start of the current quarter and provides early warning of another poor period for GDP growth. However, the ECB should at least take some heart from the apparent downward trend in inflation. The July data put the French ECDI at 4 and the ECDI-P at 5, both measures pointing to a very limited degree of overall economic outperformance.

At 48.0 in June, services collapsed into sub-50 contraction to join manufacturing, which at 46.0, sat in contraction for a fifth straight month. July's expectations are little improvement for services at 48.2 and further contraction for manufacturing at 45.5.

The flash Composite Purchasing Managers' Index (PMI) provides an early estimate of current private sector business activity by combining information obtained from surveys of 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.