According to INSEE's latest survey, sentiment in manufacturing improved sharply in December and to its highest level since July 2011. At 106, the headline indicator was up 4 points versus a slightly weaker revised November reading and well above both its 100 long-run average and market expectations.
The upturn reflected a jump in past activity (19 after 8) as well as stronger orders books (minus 10 after minus 16). Personal production expectations (8 after 5) and general production expectations (6 after 3) also posted respectable gains.
Moreover, the increased optimism in manufacturing was mirrored in services where morale similarly climbed 4 points to 106. Retail trade (107 after 103) was even more buoyant leaving just construction (98 after 99) to record the only deterioration.
Today's findings are consistent with the improvement in economic activity shown in yesterday's flash December PMI survey. If borne out in the hard data, fourth quarter real GDP growth could double the 0.2 percent quarterly rate achieved in July-September.
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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