Economic activity lost further ground in September although by less than in August. The headline composite output index rose from the previous month's final 44.6 to 46.2, still well below the 50-expansion threshold but 1.7 points above the market consensus. Even so, this was the third successive month of contraction.

The headline improvement was largely due to services where the flash sector PMI rose from August's final 47.3 to 49.8, essentially pointing to stagnation. Its manufacturing counterpart weighed in at 39.8, up from 39.1 but still deep in recession territory. Indeed, at 39.2, the manufacturing output sub-index signalled the steepest fall in some 40 months.

Ominously, total new orders fell for a fifth straight month and by the most since the early days of the pandemic. There were significant declines in both domestic and overseas demand. Order books similarly shrank again while employment saw its first decrease since December 2020. Not surprisingly, business confidence about the year ahead remained pessimistic and was the weakest since November 2022.

Not helping matters, input costs rose for a second successive month, mainly due to higher wage bills and more expensive fuel. However, output prices increased at the slowest rate since February 2021 with manufacturing matching its lowest reading since September 2009.

In sum, the September data round off a weak quarter for German GDP which now looks all the more likely to have fallen versus the previous quarter. There are some signs that the worst may be over but weak demand at home and abroad argue for a sustained soft run-in to year-end. That said, the German RPI now stands at 4 and the RPI-P at 1, both readings showing overall economic activity performing much as expected.

Manufacturing, which has contracted for 14 months in a row, is expected to hold unchanged at a deeply contractionary 39.1 in September. Services, seen slipping a further 3 tenths to 47.0, fell into contraction in August for the first time this year.

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.