French manufacturing was slightly weaker than originally thought in August. The final PMI for the month weighed in at 48.3, down 0.3 points versus its flash estimate and 1.3 points short of its final reading in July. It also signalled the worst performance in four months.
Production declined for a second month running and at its fastest rate since April while, more worryingly, new orders dropped for a sixteenth successive month and at the steepest pace since April despite broadly stable exports. Backlogs were also slightly lower and headcount fell marginally.
Input costs were up for a fifth month in a row but inflation decelerated to its lowest mark since April and factory gate prices decreased yet again.
The final August PMI data paint a generally miserable picture of French manufacturing. In addition to current weakness the ongoing decline in new business, particularly from the domestic market, argues against any meaningful recovery over at least the near-term. Second quarter GDP only stagnated and the chances are that the third quarter will not be much better.
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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