According to the new INSEE survey, business sentiment in manufacturing deteriorated in August. At 101, the industrial business climate composite indicator was down a couple of points versus its unrevised July reading and at the lowest mark since March 2015.
The drop in the headline index was driven by declines in nearly all the components of the index, led by weaker past output (4 after 10), a worsening of orders (minus 15 after minus 12) and a decline in above normal levels of finished goods inventory (10 after 16). Executives' personal expectations on future production also worsened (minus 1 after 2), as did general production expectations (0 after 2). Only the level of export order books did not deteriorate, remaining stably negative at minus 9. The downturn in industry business climate is centered primarily in the manufacture of food and beverages sub-sector, where business climate fell 7 points to the long term average of 100 mainly due to worsening of opinion on past output and a decline in global order books to below normal levels.
Except for retail trade, where sentiment also deteriorated but only by a point to 103, French business climate in other business sectors remained stable, with construction and services unchanged from July at 95 and 101 respectively. As a result, the economy-wide sentiment index edged just one point down from July to 101.
Today's results are quite weaker than the flash PMI readings released on Tuesday, which showed the composite rising a surprising 1.6 points to 51.6, led by services, which were up 1.7 to 52.00. Unlike the PMI data, The INSEE picture of the French economy suggests, at best, continued stagnation, and renews pressures on the ECB to ease again soon.
INSEE's business climate indicator aims to summarise the mood of French business leaders. The survey asks questions about output, orders and inventories and expectations for future business. These are synthesised into an overall index of sentiment, adjusted so that the long-run average is 100. The main focus is the manufacturing sector but the survey also provides separate confidence 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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