French manufacturing activity in July contracted as indicated in the flash PMI report. At 49.6, the headline index was unchanged from its preliminary reading and so 1.1 points below its final June posting and also short of the key 50 expansion threshold.
As signalled before, July witnessed modest reductions in both output and new orders alongside a sixteenth successive decline in employment. Backlogs increased for a second consecutive month but their rate of expansion was only marginal. Supplier delivery times lengthened but this was largely due to low stock levels rather than issues concerning capacity.
Input costs rose once more but the rate of cost inflation dipped slightly from June and so remained weaker than the survey's long-run average. More importantly, output prices decreased for a seventeenth straight month, again reflecting tight markets and high competitive pressures.
The final July results add little to the flash report. The recovery in manufacturing remains sluggish and the weakness of domestic demand continues to keep prices in check at the expense of margins. The outlook for the third quarter is not particularly bright.
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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