Manufacturing activity contracted again in September, albeit at slower pace than generally expected. At 44.9, the SVME PMI was up fully 5 points versus it August mark and 4.4 points stronger than the market consensus. However, while also matching a 5-month high, the latest reading still means that the headline index has been below the 50-expansion threshold every month so far this year.

Production, orders and purchasing volume all fell by less than in August while employment and sales stocks posted outright gains.

The PMI is not especially well correlated with GDP but the ongoing run of sub-50 readings suggests that growth will remain very subdued through year-end. That said, today's report lifts the Swiss RPI to minus 5 and the RPI-P to minus 2, both readings indicating that forecasters are finally adjusting to what has been a prolonged period of economic underperformance.

The headline index is expected to edge up to 40.5 in September, still well below the 50-expansion threshold.

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.