Private sector business activity went into reverse in May. At 49.1, the flash composite output index slipped back below the 50-expansion threshold and also fell short of the market consensus. The latest print was down from April's final 50.5, itself indicative of the first positive growth in almost a year.

This month's deterioration was attributable to services where the flash sector PMI weighed in at 49.4, well short of April's final 51.3 albeit only a 2-month low. By contrast, its manufacturing counterpart rose from 46.8 to 46.7 although this too was in contraction territory.

More optimistically, aggregate new orders increased for the first time in more than a year despite another decline in exports and, courtesy of services, this prompted a fourth successive addition to headcount. Even so, falling backlogs continued to support output and overall business confidence in the year ahead eased to its lowest level in four months.

Input cost inflation was slightly higher and hit a 6-month peak but output price inflation declined to its lowest mark in more than three years.

In sum, the May results are disappointing and suggest that the economy was close to stagnating in mid-quarter. Combined with decelerating output prices, the data will further underpin expectations for a 25 basis point cut in ECB interest rates next month. Today's report trims the French RPI to minus 2 and the RPI-P to minus 13. Economic activity in general is now running slightly behind market forecasts.

The composite output index is seen at 50.7 in May versus April's final 50.5.

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.