Eurozone business activity was surprisingly weak in October. The flash composite output index weighed in at just 46.5, nearly a full point short of the market consensus and a 35-month low. This was the sixth consecutive month in which total output has declined.

Both manufacturing and services lost additional ground versus September. The flash sector PMI for the former was 43.0, down from the previous month's final 43.4 and a 3-month low. Its services counterpart dropped to 47.8 from 48.7, its worst performance in 32 months.

Aggregate new orders saw an accelerated downturn as did backlogs and the combined weakness here prompted firms to reduce employment for the first time since January 2021. That said, the loss was wholly attributable to manufacturing where headcount declined by the most since August 2020. Services eked out a minor increase. Looking ahead business confidence in the coming year showed a marginal improvement but the overall level remained among the softest seen over the past year. A modest rise in services was just enough to more than offset a deterioration in manufacturing.

Input costs fell in both sectors, notably in manufacturing which posted an eighth successive decrease. Reflecting this, combined output prices advanced at a slightly slower pace than in September and the inflation rate edged down to its lowest point since February 2021. Another fall in manufacturing was compounded by some cooling in services.

The October results are disappointing and, taken at face value, suggest that the Eurozone economy is contracting. The PMIs have not been a particularly good indicator of the region's GDP in recent months but the ongoing, and sizeable, decline in new orders must argue against any near-term pick-up. To this end, today's update reduces the Eurozone's RPI to minus 12 and the RPI-P to minus 22. Both readings show that economic activity in general is undershooting market expectations.

After September's 43.4 for manufacturing and 48.7 for services, the consensus estimates for October's readings are 43.7 and 48.7 respectively. Manufacturing has been in contraction for the last 15 months straight while services in September held in contraction for a second straight month.

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.