Overall business activity continued to shrink in July. The 46.6 flash composite output index was unrevised and so remains 0.6 points below its final reading in June and indicative of the steepest contraction since November 2020.

The decline in services was slightly sharper than originally reported, with the 47.4 flash sector PMI being revised down to 47.1, now 0.9 points below its final June mark and its weakest reading since February 2021. New orders declined for a third consecutive month and at the fastest rate in almost two-and-a-half years. Backlogs rose despite the weakness of demand, but the increase was only marginal. Similarly, headcount was up, but by the least in 31 months. Still, there was a solid improvement in business sentiment which, having slumped in June climbed to a 4-month high.

Meantime, input cost inflation eased versus June and was the lowest in almost two years. Even so, companies noted persistently high wage pressures and output prices increased again.

In summary, today's update points to a further loss of economic momentum at the start of the quarter and provides early warning of another poor period for GDP growth. That said, both the French ECDI (10) and ECDI-P (25) remain in positive surprise territory and indicate a modest degree of outperformance versus expectations.

No revisions are expected to the flash data leaving the composite output index at 46.2 and the services PMI at 47.4.

The Composite Purchasing Managers' Index (PMI) provides an estimate of private sector output for the preceding month by combining information obtained from surveys of around 750 manufacturing and service sector companies. 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.

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.