Manufacturing activity contracted sharply in July. The final PMI weighed in at 38.8, matching the flash estimate but well down on June's final 40.6 and even further below the 50-expansion threshold. This is its weakest reading since May 2020.

The monthly deterioration in the headline index reflected the steepest fall in output since the Covid shutdowns and, ominously, an even sharper drop in new orders. Headcount was down for the first time since January 2021 and firms were more pessimistic about the outlook for production. Expectations deteriorated for a third straight month running and to the lowest level since November last year.

Input costs fell again and paved the way for a second successive drop in factory gate charges. Indeed, the rates of decline in output prices and input costs accelerated to the quickest seen since September 2009 and April 2009 respectively.

The July update confirms a dismal picture of German manufacturing and suggests no recovery over at least the near-term. About the only good news here is diminishing inflation pressures. The German ECDI now stands at minus 4 and the ECDI-P at minus 5, both measures signalling a very modest degree of overall economic underperformance.

No revision is expected to the flash print.

The Manufacturing Purchasing Managers' Index (PMI) provides an estimate of manufacturing business activity for the preceding month by using information obtained from a representative sector survey incorporating around 500 companies. Results 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 data are released 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 ISM manufacturing index in the U.S. and the Markit PMIs elsewhere, 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.

The S&P Global PMI manufacturing data give a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. And its sub-indexes provide a picture of orders, output, employment and prices.