Private sector business activity contracted again in August. The flash composite output index weighed in at 46.6, unchanged from its final July reading, itself the lowest print since November 2020, and also matching the market consensus.

The flash manufacturing PMI stood at 46.4, up from July's final 45.1 and a 5-month high but still indicative of an ongoing recession. Its service sector counterpart lost further ground, sliding from 47.1 to 46.7, a 30-month trough. Manufacturing output (45.8 after 44.0) continued to decline, albeit at a slightly shallower rate than previously, and the fall in new orders accelerated in both sectors. Similarly, total backlogs decreased at the sharpest rate in close to three years. Overall employment still rose but the rate of job creation eased to its weakest mark since January 2021 and business confidence worsened but remained above June's 32-month low.

Inflation pressures softened again although a 29-month low on overall input cost inflation masked a significant monthly rise in service sector costs. In the same vein, while factory gate prices fell, services fees increased further. Aggregate selling price inflation slowed to its weakest since April 2021.

Taken at face value, today's update points to another poor month for French economic activity. The PMI data were overly negative about second quarter GDP but the persistent weakness of demand warns that growth this quarter will be a good deal slower and possibly negative. Still, the August data put the French ECDI at 15 and the ECDI-P at 13, both measures indicating that the overall economy is performing slightly better than expected.

At a final 47.1 in July, services remained in contraction for a second straight month. Manufacturing, which at 45.1, sat in contraction for a sixth straight month. August's flash expectations are similarly poor, at 47.2 for services and 45.2 for manufacturing.

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.