French manufacturing activity was marginally weaker than originally thought at the start of the year. The flash PMI was revised down 0.3 points to 49.2 which, while still below 50, was at least 1.7 points above its final December reading.
As previously indicated, production was down for an eighth consecutive month but only slightly and by the smallest amount over the period. The reduced rate of decline here reflected a moderation in the pace of contraction in new orders although within this, exports were again disappointingly soft. Backlogs similarly extended their trend decrease but January's drop was the mildest in more than half a year. Meantime, employment shrank again but the rate of job shedding was the second weakest since April 2014.
Inflation developments were predictably soft. Hence, input costs fell for a second consecutive month and by the steepest amount in some two and a half years. In turn, this paved the way for an eleventh successive reduction in factory gate prices.
The minor adjustment to the headline PMI leaves intact a picture of weak, but potentially stabilising, business activity in French manufacturing. Coming on top of the surprising strength of the December household consumption data released last Friday, there are at last some cautious grounds for optimism about the French economy. However, near-record levels of unemployment remain a major threat to domestic probably continue struggle to achieve any real momentum.
The Purchasing Managers' Manufacturing Index (PMI) is based on monthly questionnaire surveys of selected companies which provide an advance indication of what is really happening in the private sector economy by tracking changes in variables such as output, new orders, stock levels, employment and prices across the manufacturing sectors.
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 Markit 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.
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