Private sector business activity unexpectedly contracted in September. The flash composite output index dropped from August's final 51.0 to 48.9, some 0.7 points short of the market consensus and below the 50-expansion threshold for the first time in seven months. Today's reading supports the view that the August data benefited from the Paris Olympics.

The headline deterioration in part reflected the ongoing weakness of manufacturing where the flash sector PMI dropped from August's already soft final 45.8 to just 44.8, a 9-month low. Its services also lost ground and, at 50.5 after 52.9, signalled little more than stagnation and a 7-month trough.

Aggregate new orders and backlogs declined again, the former sliding by the most since January. Manufacturing output (44.5) also declined at the steepest pace in 9-months. Consequently, total headcount was trimmed for a second straight month as business confidence in the year ahead continued to worsen and hit its weakest point in 10 months.

Inflation pressures eased. Input cost inflation slowed to its lowest mark since November 2020, paving the way for output prices to increase by the least since February last year.

The disappointingly poor September results will boost speculation about another cut in ECB interest rates before year-end. An apparent preference for easing when the quarterly economic forecasts are updated probably leaves December as the most likely month but the odds on an October move have now shortened. Today's data reduce the region's RPI to minus 16) and RPI-P to minus 32). Both gauges show economic activity in general falling behind market expectations.

The composite is expected to fall 0.4 points to 50.6 in September versus 51.0 in August. Strength in services lifted August's composite, rising 1 full point to 52.9 with September seen at 52.5. Manufacturing in September is expected to weaken further to 45.5 versus a very weak score of 45.8 score in each of the prior three 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 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.