INSEE's May survey showed manufacturing sentiment rising from an upwardly revised 102 in April to a higher than expected 103 in May, its strongest reading since July 2011.
However, May's headline gain was built upon a strong increase in past output (up 10 points at 15) and masked a deterioration in the more forward looking indicators. Hence, total orders and demand dipped 2 points to minus 20 within which overseas orders dropped 7 points to minus 13, its weakest mark since February. Executives' personal output expectations (6) were unchanged but the general industry outlook (minus 1 after 2) saw a 3-month low.
Nonetheless, elsewhere sentiment was also on the rise. Hence, morale in services and retail gained 2 points to 94 and 106 respectively and construction was up a point at 103. Wholesale trade fared even better, climbing 4 points from March to 101. As a result, the economy-wide climate indicator rose 1 point to 97, equalling its best level since September 2011.
The economy looks to be on the mend and the broad-based improvement shown this month is promising. That said, the composite indicator is still below its 100 long-run average suggesting that the pace of recovery remains painfully slow.
The indicator is a measure of the prevailing sentiment among French business leaders. The main focus is the manufacturing sector but the survey provides separate sentiment measures for construction, retail trade and services on a monthly basis and for wholesale trade every other month.
If you are looking for clues on French business sentiment, this survey would be a good starting point. The indicator is based on a survey that asks business leaders about their expectations for new orders and their overall impressions of the economy. The results are a diffusion index that reflects the difference between positive and negative responses as a percentage of the total number of answers. It uses 100 as the dividing line between positive and negative sentiment.
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