The flash composite output index was again stronger than expected in May and points to only the second increase in business activity in 11 months. At 52.2, the latest reading was up from April's final 50.6 and a full point above the market consensus. It was also a 12-month high.

Growth remains wholly attributable to services where the flash sector PMI weighed in at a solid 53.9, up from April's final 53.2 and an 11-month peak. Manufacturing remains in the doldrums but a flash PMI of 45.4 was at least nearly 3 points above April's final 42.5 and a 4-month high. Manufacturing output (48.9) saw its smallest fall in 13 months.

Aggregate new orders increased for the first time in more than 12 months due to stronger demand for services but backlogs fell in both sectors. Overall employment also expanded further despite another decline in manufacturing and business expectations about the year ahead saw a broad-based improvement to claim their best level since February 2022.

Meantime, overall input cost inflation eased to a 6-month low while the output price rate posted its weakest outturn in more than three years and slipped below its long-run average.

The May update provides a surprisingly optimistic picture of the German economy. Services are doing fine and manufacturing looks to be on the mend. Second quarter GDP would seem to be shaping up well and declining inflation pressures will put a smile on the ECB's face. Today's data put the German RPI at 11 and the RPI-P at 20, both measures showing economic activity in general running slightly ahead of market expectations.

Manufacturing in April improved slightly but remained deeply depressed at 42.5. Further improvement is expected to 43.5 which, however, would still be deeply negative. Services, which in April jumped more than 3 points to 53.2, are seen at 53.5. Consensus for May's composite is 51.2 following April's 50.6 which was the first plus-50 expansion reading in 10 months.

The flash Composite Purchasing Managers' Index (PMI) provides an early estimate of current private sector business activity by combining information obtained from surveys of around 1,000 manufacturing and service sector companies. The flash data are released around ten days ahead of the final report and are typically based upon around 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 data are produced 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.