INSEE's new business climate survey shows sentiment in manufacturing unexpectedly improving in August. At 103, the headline confidence index was up a point versus its July outturn to match its strongest reading in four years and move slightly further above its long-run average (100).
The mid-quarter gain reflected a healthier order book and more optimistic expectations about future business. In addition, the increase in the former sub-index (minus 13 after minus 17) masked a flat performance by overseas demand (minus 8) suggesting that the upturn here was wholly attributable to a firmer domestic market. Executives' personal outlook on manufacturing production rose 2 points to 7 while general industry expectations climbed from zero to 3.
Elsewhere amongst the major sectors the news was mixed. Hence, while sentiment in services was up 2 points at 99 and in construction a point higher at 91, it fell from 106 to 105 in retail. Nonetheless, for the economy as a whole the business climate index edged up 1 point to 100 and so reattained it historic norm for the first time since August 2011.
Today's results are notably more positive than the flash PMI survey which found decelerating activity in services and an outright contraction in manufacturing. Something somewhere in the middle is probably not far off the truth implying a still disappointingly sluggish recovery and a widening performance gap with most other EMU states.
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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