The dire state of the German manufacturing sector was confirmed in the final data for August. At 39.1, the sector PMI was unrevised from its flash estimate and so just 0.3 points above June's final 38.8 and deep in recession territory.

Production again declined at an accelerated rate and at the fastest pace since the Covid-related shutdowns in spring 2020. New orders similarly fell by the most in more than three years and, ominously, at a faster pace than output. But for another decline in backlogs, production would have been even weaker. Employment remained supported by the reluctance of companies to shed staff in what is still a tight labour market, but headcount still posted its first decrease in two and a half years. All that said, business expectations edged firmer from July's eight-month low.

Input costs continued to fall and at the second-fastest rate in more than 14 years. As a result, factory gate prices were also cut for a third straight month, albeit by slightly less than in July.

Taken at face value, today's report points to a contraction in manufacturing output of around 1.0 percent this quarter. Business expectations are not quite as weak as they were but, with orders still sliding faster than production, the fourth quarter is likely to look pretty awful too. The August update puts the German ECDI at minus 19 and the ECDI-P at minus 31. Economic activity in general continues to lag market expectations by some margin.

No revision is expected to the flash data leaving the headline index at 39.1, up from July's final 38.8.

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.