Manufacturing activity continued to contract sharply in August, albeit at much the rate expected in financial markets. At 39.9, the SVME PMI was just 0.1 point short of the market consensus and 1.4 points above its level in July. However, the latest reading was still the second weakest since April 2009 and indicative of a manufacturing sector that remains mired in recession.

Output fell again as did backlogs, purchasing volumes and delivery times. The rate of job shedding accelerated while inflationary pressures were markedly softer than in July.

The PMI is not especially well correlated with GDP but its persistent extreme weakness cannot bode well. To this end, today's report leaves both the Swiss ECDI (minus 20) and ECDI-P (minus 28) well below zero, extending the near-unbroken period of overall economic underperformance that began back in late-March.

Having slumped in July, the SVME PMI is expected to claw its way back up to a still very weak 40.0.

The SVME (Schweizerischer Verband für Materialwirtschaft und Einkauf) Association for Purchasing and Supply Management's Purchasing Managers' Index (PMI) is produced in conjunction with Credit Suisse. The PMI provides an estimate of manufacturing business activity for the preceding month by using information obtained from a representative sector of purchasing managers. 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 PMI is very sensitive to the business cycle and tends to match growth or decline in the economy as a whole. To construct the PMI the Swiss Association of Purchasing and Materials Management conducts monthly surveys of purchasing executives on their performance in the current month versus the previous period. Because the amount of materials ordered by purchasing managers parallels the level of manufacturing production, the PMI is a gauge of production growth. The results are indexed with a centerline of 50; values above 50 indicate expectations of expansion and values below 50 indicate expectations of contraction for the manufacturing sector.