Manufacturing activity contracted very sharply and by much more than expected in July. At just 38.5, the SVME PMI was down more than 6 points versus June and some 5.5 points beneath the market consensus. The latest drop means that the headline index has still fallen every month so far in 2023 with the latest slump leaving the measure at its weakest mark since April 2009 and so even short of its Covid-inspired lows.

Production, order books, employment and purchasing activity all posted outright declines although, at 48.8, the employment sub-index was only just shy of the 50-expansion threshold.

The PMI is not especially well correlated with GDP but the marked widening in its gap with the growth threshold cannot bode well. To this end, today's disappointingly poor update trims the Swiss ECDI to minus 23 and the ECDI-P to minus 9. Both gauges show economic activity falling behind market expectations, notably the latter index which remarkably has not posted above zero since early February.

The PMI is seen losing further ground to 44.0 in July.

The SVME (Schweizerischer Verband für Materialwirtschaft und Einkauf) Association for Purchasing and Supply Management's Purchasing Managers' Index (PMI) is produced in conjunction with Credit Suisse. The PMI provides an estimate of manufacturing business activity for the preceding month by using information obtained from a representative sector of purchasing managers. 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 PMI is very sensitive to the business cycle and tends to match growth or decline in the economy as a whole. To construct the PMI the Swiss Association of Purchasing and Materials Management conducts monthly surveys of purchasing executives on their performance in the current month versus the previous period. Because the amount of materials ordered by purchasing managers parallels the level of manufacturing production, the PMI is a gauge of production growth. The results are indexed with a centerline of 50; values above 50 indicate expectations of expansion and values below 50 indicate expectations of contraction for the manufacturing sector.