Eurozone business activity performed much as expected at the start of the year. At 47.9, the flash composite output index was just 0.1 point short of the market consensus and 0.3 points above its final reading in December. Although still well shy of the 50-expansion threshold, the latest print was the highest in six months.

The headline improvement was wholly attributable to manufacturing where the flash sector PMI climbed from a lowly final 44.4 at year-end to 46.6, well above expectations and a 10-month peak. By contrast, its services counterpart fell from 48.8 to 48.4, a 3-month trough.

Aggregate new orders decreased again and, ominously, continued to do so at a faster pace than output. Consequently, production levels would have been weaker but for backlogs which were trimmed for an 18th time in the last 19 months. Purchasing activity also declined further but employment saw a small rise and business expectations about the coming year were the most optimistic since last May. That said, the latest level was still below its pre-pandemic mark.

Supplier delivery times lengthened for the first time in a year, in large part due to the disruptions to shipping traffic caused by military developments in the Red Sea. This contributed to the highest rate of input cost inflation since last May. The output price rate followed suit having touched a 32-month low last October.

In sum, the January update points to no improvement in overall Eurozone economic conditions and warn of another poor quarter for both output and demand. Even so, with the ECB firmly focused on inflation, the latest results for both input costs and output prices should help to ensure that the Governing Council is in no rush to cut key interest rates. Today's data leave the region's RPI at minus 12 and the RPI-P at minus 15, both measures showing economic activity in general falling slightly short of market expectations.

The composite is expected to modestly improve in January to 48.0 versus 47.6 in December. Manufacturing is likewise expected to improve to 44.8 versus December's 44.4 with January services expected at 49.0 from 48.8.

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.