Sentiment in manufacturing surprisingly deteriorated in June according to the new INSEE survey. At 100 the headline business climate index was down 3 points versus its May reading, comfortably short of expectations and at its lowest; level since March.
This month's reversal reflected sharply reduced past output (7 after 16) as well weaker manufacturing orders and demand (minus 22 after minus 19). Part of the drop in the latter was attributable to softer overseas markets (minus 15 after minus 13) but the indications are that domestic activity also slowed. Executives' personal outlook on future manufacturing output was at least steady at 6 but the general industry production prognosis dipped a point to minus 2.
Elsewhere developments were rather more reassuring. Hence morale in both services and retail trade held steady at 95 and 106 respectively while in construction it gained 2 points to 91. As a result, the overall climate indicator was down just 1 point at 97 although this still widened its shortfall with its long-run average.
Today's report points to a sluggish end to the second quarter by French GDP and makes for downside risk to the upcoming flash PMIs, notably in manufacturing.
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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