Growth of private sector business activity picked up rather faster than expected in August but was still quite sluggish. The flash composite output index weighed in at 51.2, up from July's final 50.2 and 0.5 points above the market consensus. However, while a 3-month high, it was only 1.2 points above the 50-expansion threshold and probably benefited from the Paris Olympics.

The headline improvement was almost wholly attributable to services where the flash sector PMI rose from July's final 51.9 to 53.3, a 4-month peak. Its manufacturing counterpart slipped from 45.8 to 45.6, an 8-month low although within this the output sub-index edged a tick firmer to 45.7.

Aggregate new orders declined for a third straight month due to weakness in manufacturing and backlogs fell by the most since February. Overall employment posted its first drop in eight months despite a small rise in services and purchasing activity contracted by the most in four months. Against this backdrop, business expectations worsened again and hit their lowest mark so far in 2024. They were also below their long-run average.

Inflation news was mixed. Input costs rose sharply again but the yearly rate slipped to an 8-month low. At the same time, an increase in output prices was the steepest in four months and stronger than their historic norm as manufacturing prices rose for the first time since April 2023.

The flash August results point to a modest pick-up in overall momentum but third quarter growth looks unlikely to impress. Germany in particular remains a major drag. That said, the ECB might have been hoping for some slightly softer inflation signals. Today's data leave both the region's RPI (minus 11) and RPI-P (minus 22) showing economic activity in general struggling to keep up with market expectations.

The composite is expected to rise to 50.7 in August versus 50.2 in July and 50.9 in June. Manufacturing in August is expected to edge higher to 46.1 versus 45.8 in both July and June. Services are expected at 52.2 from July's 51.9.

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.