The purchasing managers in the Euro Area surveyed by Markit Economics continue to be cautious in their appraisal of the economy.  The July flash estimate for the Composite diffusion index is  46.3819, above  the June flash estimate of 46.0198 but slightly below the June final estimate of 46.3889.  The small decline in the composite index from the June final to the July Flash  was due to a more substantial decline in the manufacturing index offset by a rise in the services index.  The July flash estimate for the manufacturing index was 43.6030, below both the June Flash estimate of 44.3613 and the June Final estimate of  44.7463.  The July flash estimate for the services index was 47.6387, up from the June Flash estimate of 46.7700 and the June final estimate of 47.1318.  In spite of the improvement in the service sector, all  the indexes are below the 50 mark which, in the case of diffusion indexes, means that all are in a period of contraction.  Moreover the indexes have been below 50 almost continuously since August 2011. The first chart shows the Flash Estimates for the Composite, Manufacturing and Service Diffusion Indexes.

The purchasing managers composite index for the Euro Area  has been a relatively good indicator of the trend in the Euro Area's Gross Domestic Product and currently is suggesting a decline in real GDP in the Euro Area in the second quarter.  The second chart compares the quarterly average of the purchasing managers' final estimates of the composite index with the quarter to quarter percent change in GDP.  The correlation between the PMI index and the quarter to quarter change in GDP over the last thirteen years is .86