The final composite output index for August weighed in at 44.6, just 0.1 point short of its flash reading but its lowest level since May 2020.

The headline fall versus July's final 48.5 print was wholly attributable to services, where the 47.3 flash sector PMI was unrevised but some five points below its final July mark. This signalled the first outright contraction in eight months. Inflows of new business declined for a second straight month and by the most since last November and backlogs were down for a third month in a row and at a rate not exceeded since June 2020. Weak demand almost put a break on job creation where growth matched its slowest pace since turning positive in the middle of 2020. Business expectations about the year ahead improved slightly but remained well below their historic norm.

However, by contrast, inflationary pressures in services were again strong. Higher wages and rising fuel charges saw input cost inflation rise for a second month running and so move further above its long-run average. In turn, this prompted a further steep increase in output prices, although the inflation rate here was little changed and so close to June's 21-month low.

The third quarter economy looks to be shaping up badly and on current trends, recession by year end cannot be ruled out. However, with signs of underlying price pressures in services still uncomfortably strong, weakness in the real economy will only have a limited impact on ECB policy. Today's update puts the German ECDI at minus 18 and the ECDI-P at minus 29. Overall economic activity continues to undershoot market expectations as it has done fairly consistently since the start of May.

No revisions are expected to the flash data leaving the composite output index at 44.7 and the services PMI at 47.3.

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 1,000 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.

The Purchasing Managers Index (PMI) survey has developed an outstanding reputation for providing the most up-to-date possible indication of what is really happening in the private sector economy by tracking variables such as sales, employment, inventories and prices. The indices are widely used by businesses, governments and economic analysts in financial institutions to help better understand business conditions and guide corporate and investment strategy. In particular, central banks in many countries (including the European Central Bank) use the data to help make interest rate decisions. PMI surveys are the first indicators of economic conditions published each month and are therefore available well ahead of comparable data produced by government bodies.