Private sector business activity was a little weaker than originally thought in August. The 46.6 flash composite output index was revised down to 46.0, now just 0.6 points above its final reading in July and indicative of a third successive monthly contraction.

The negative headline adjustment in part reflected weaker services where the 46.7 flash sector PMI was trimmed to also 46.0, a 1.1 point fall versus its final print at the start of the quarter. Both output and new business posted fresh declines, the former falling by the most in 33 months. Backlogs were similarly lower and although employment rose, the increase was only marginal. Business optimism about the year ahead followed suit and, apart from June, was the lowest so far this year.

However, inflation news was positive, with the input cost rate the weakest since March 2021 and output prices rising by the least in 28 months.

In sum, the August update increases the likelihood of a marked slowdown in GDP growth in the third quarter, although note that on this front, the second quarter PMIs were overly pessimistic. The French ECDI now stands at minus 6 and the ECDI-P at minus 24, both measures showing overall economic activity running behind market expectations.

No revisions are expected to the flash data leaving the composite output index at 46.6 and the services PMI at 46.7.

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 750 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.

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.