The French private sector economy bounced back in August, with manufacturing and services increasing substantially from their July readings. The composite PMI index rose to 49.8 from 48.6 in July, the highest reading in a year, according to a flash estimate.

Underpinning the improvement was the manufacturing sector which rose to a 31-month high of 49.9 from 48.2 in July. Services also improved by more than one point, gaining from 48.5 in July to 49.7 in August.

To be sure, both readings are still below 50, meaning the private sector economy is still in contraction. However, the gains are encouraging, particularly since they are in both of the major sectors. Hiring increased for the first time since November in manufacturing and services for temporary and permanent staff. Even with more employees, unfinished work increased for the first time in two years in August.

Still, any optimism should be tinged with caution; demand remains weak, and order books levels fell for the 15th month in a row. Moreover, prices pressures picked up, with input costs rising for the first time since May, with increases also coming from wages and increased raw materials prices.

The outlook for the coming twelve months showed the balance of firms turning pessimistic, the first time that is the case since November.

The question now is whether the private sector is at an inflection point where it begins to expand in the coming months, or whether preliminary data for August are the high-water mark. This is the first reporting month where tariffs are in place. With the agreement set with the US for 15 percent levies, companies now at least have some more planning certainty.

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.