Eurozone manufacturing finally broke free from contraction in August, with the manufacturing PMI rising to 50.7, 0.2 points above the consensus forecast and marking its first expansion in over two years, as well as a 38-month high. Factory output surged at the fastest pace since March 2022, underpinned by a long-awaited return of new orders after nearly three-and-a-half years of decline. Crucially, the momentum came from domestic demand, as export sales continued to weaken.

The rebound was broad-based, with most euro area economies posting expansionary readings. Greece and Spain led the upturn, while France and Italy edged back into growth. Germany, though still below the 50.0 threshold, recorded its strongest performance in over three years, signalling stabilisation, and Austria's downturn also eased.

Despite improving demand, manufacturers remained cautious. Backlogs of work fell for the 39th straight month, inventories were cut at the sharpest pace since March, and purchasing activity declined. Job shedding persisted, though at one of the softest rates in over two years. Cost pressures re-emerged with input prices rising slightly, but competitive forces pushed output prices lower.

In summary, eurozone manufacturing is regaining momentum, driven by domestic markets; yet sustained growth will hinge on exports reviving and firms rebuilding confidence. This latest update brings the RPI to minus 17 and the RPI-P to minus 19, indicating that economic activities are lagging behind the expectations for the eurozone economy.

The Manufacturing Purchasing Managers' Index (PMI) provides an estimate of manufacturing business activity for the preceding month by using information obtained from a representative sector survey incorporating around 3,000 companies. Results 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). Released by S&P Global, national data are included for Germany, France, Italy, Spain, the Netherlands, Austria, the Republic of Ireland and Greece. These countries together account for an estimated 89 percent of Eurozone manufacturing activity.

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 S&P Global PMIs 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 S&P Global 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.