The Eurozone economy contracted again in September, but by rather less than expected. At 47.1, the flash composite output index remained in negative growth territory but was at least up from August's final 46.7 and almost a full point above the market consensus. Even so, this was its fourth successive print below the 50-expansion threshold.

The monthly headline gain was attributable to a less weak performance by services, where the sector flash PMI rose from August's final 47.9 to 48.4, albeit just a 2-month high. By contrast, its manufacturing counterpart dipped from 43.5 to 43.4 and so remained mired in recession. Manufacturing output (43.4) extended its longstanding downtrend and fell at the same pace as in mid-quarter.

In fact, aggregate demand decreased for a fourth straight month and by the most since November 2020 with export demand shrinking even more rapidly than the domestic market. Backlogs followed suit and the drop here was the sharpest since June 2020. Labour hoarding continued to support employment but headcount growth was the joint-second slowest in the current 32-month sequence of gains. Against this backdrop, business sentiment deteriorated further to hit its lowest level since last November.

Meantime, input costs increased at the fastest pace in four months due to higher wages in services. Manufacturing saw a seventh successive decline. However, weak demand ensured that average output prices increased by the least since February 2021.

The September update will probably reinforce the ECB's doves view that the ECB should not have hiked interest rates again last week. Still, with mounting evidence that softening demand is forcing inflation down, today's data bolster the likelihood of key interest rates having peaked. Certainly, another rise in October would require a particularly strong September HICP. The region's RPI and RPI-P now stand at minus 4 and minus 9 respectively, showing only a very a limited degree of underperformance versus market expectations.

After August's 43.5 for manufacturing and 47.9 for services, the consensus estimates for September look for little change, at 43.6 and 47.5 respectively.

The flash Composite Purchasing Managers' Index (PMI) provides an early estimate of current private sector business activity by combining information obtained from surveys of the manufacturing and service sectors of the economy. The flash data are released around ten days ahead of the final report and are typically based upon around 75-85 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 survey, produced by S&P Global uses a representative sample of around 5,000 manufacturing and services companies, the former including Germany, France, Italy, Spain, the Netherlands, Austria, the Republic of Ireland and Greece and the latter Germany, France, Italy, Spain and the Republic of Ireland.

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.