The S&P PMI manufacturing index fell to 49.6 in July, 2.0 points less than June (51.6) and 0.1 points above the mid-month flash (49.5). This is the first sub-50 score in 7 months indicating contraction of the manufacturing economy.

This sharp decline is partly due to a decline in new orders seen for the first time in three months. Firms reported a slowdown in market demand with clients often reluctant to commit to new projects due, according to the report, to the presidential election.

However, work on outstanding business and recent stock replenishment meant that output kept rising although only slightly. Firms were able to clear backlogs due to increased production and fewer new order demands. Employment also rose, although at a slow pace.

Manufacturers increased their selling prices in July but only slightly, as inflation hit a record one-year low. The report describes optimism as still high with firms hoping the current decrease in demand will pass once the elections are over.

The final manufacturing PMI for July is expected to come in at 49.5, unchanged from the lower-than-expected flash and more than 2 points below June.

Based on monthly questionnaire surveys of selected companies, the Purchasing Managers' Manufacturing Index (PMI) offers an advance indication on month-to-month activity in the private sector economy by tracking changes in variables such as production, new orders, stock levels, employment and prices across manufacturing industries. The final index for the current month is released roughly a week after the flash.

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 ISM manufacturing index in the U.S. and the Markit PMIs in the U.S. and elsewhere, 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.

The Markit PMI manufacturing data give a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. And its sub-indexes provide a picture of orders, output, employment and prices.

Markit originally began collecting monthly Purchasing Managers' Index (PMI) data in the U.S. in April 2004, initially from a panel of manufacturers in the U.S. electronics goods producing sector. In May 2007, Markit's U.S. PMI research was extended out to cover producers of metal goods. In October 2009, Markit's U.S. Manufacturing PMI survey panel was extended further to cover all areas of U.S. manufacturing activity. Back data for Markit's U.S. Manufacturing PMI between May 2007 and September 2009 are an aggregation of data collected from producers of electronic goods and metal goods producers, while data from October 2009 are based on data collected from a panel representing the entire U.S. manufacturing economy. Markit's total U.S. Manufacturing PMI survey panel comprises over 600 companies.