Germany's manufacturing sector showed its strongest signs of revival in nearly three-and-a-half years in August, with output growth reaching a 41-month high and the PMI climbing to 49.8, its best since mid-2022. Production gains, underpinned by rising new orders, extended their six-month run, though export demand slipped slightly. This rebound, however, contrasted with persistent weaknesses. Firms remained in job-cutting mode, accelerating staff reductions while scaling back contractor numbers and avoiding replacements. Purchasing activity declined at the sharpest pace since March, with firms reducing both pre- and post-production inventories.

Price trends continued to ease, as both input costs and factory gate prices declined, the latter at the fastest rate in six months, reflecting competitive pressures and the pass-through of cheaper inputs. Delivery times improved only fractionally, signalling limited supply-chain relief. While manufacturers benefitted from backlogged work, their optimism for the year ahead weakened slightly from June's peak, though it remained above the long-run average.

Overall, the August data indicate that the sector is regaining momentum in output and demand, but with fragility evident in employment cuts, subdued investment in inputs, and cautious expectations for future growth. These latest updates take the RPI to minus 22 and the RPI-P to minus 30, meaning that economic activities continue to stay behind market expectations in Germany.

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 500 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). The data are released 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 ISM manufacturing index in the U.S. and the Markit 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.