The composite PMI output index, which decreased to 47.2, demonstrated that Germany's economy experienced a more severe contraction in September, primarily due to a significant decline in the manufacturing sector. This represents the biggest decline in business activity since February. With a substantial decrease in new orders and export business, manufacturing output plummeted to a 12-month low of 40.5.

At a modest 50.6, the services sector PMI signalled little more than stagnation in overall business activity. Employment decreased for the fourth consecutive month, and the rate of job cuts reached its highest level in 15 years, excluding the pandemic. Businesses became increasingly pessimistic, with more firms anticipating a decrease in output than a rise for the first time in a year, particularly in the automotive and construction sectors.

On the inflation front, cost pressures decreased in both sectors, with input prices in manufacturing decreasing and service sector costs increasing at their weakest rate in over three years. Despite a minor reduction in inflationary pressures, Germany's economic prognosis remains dismal, as recession concerns continue to escalate. The RPI now stands at minus 15 and the RPI-P at minus 30, meaning that the German economy is underperforming compared to market consensus.

Manufacturing in August remained deeply depressed at 42.4. Not much further improvement is expected for September where the consensus is 42.0. Services, which in August fell 1.3 points to 51.2, are seen at 51.0. Consensus for September's composite is 48.3 following August's 48.4.

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.