|Composite - Level||52.8||53.1||51.4|
|Services - Level||52.6||52.9||51.6|
The French economy ended 2016 on a slightly stronger note than originally thought. At 53.1, the composite output index was revised up 0.3 points versus its flash estimate to register an 18-month high.
The upward revision to the headline index came courtesy of a more robust services sector where the flash PMI was revised 0.3 points firmer at 52.9, a 3-month peak. Key to this was a faster rate of increase in new business where the gain was the steepest since June 2015. Some pressure on operating capacity was highlighted in another rise in backlogs, although the increase here was the smallest in the last four months and moderate overall. Indeed, employment was only flat after just a marginal advance in November. Nonetheless, business expectations about the year ahead remained positive and confidence even climbed to its highest mark since March 2012.
Input costs rose quite markedly and the inflation rate was the strongest for seven months. More importantly however, service provider selling prices continued to decline although the rate of deflation was the weakest in some fifty-two months.
The improvement in the aggregate French economy in December is long overdue and should make for a useful pickup in fourth quarter real GDP growth. Even so, business activity continues to lag well behind the Eurozone average and further significant gains will be required both to close this gap and generate some meaningful upside pressure on domestic inflation.
The Composite Purchasing Managers' Index (PMI) provides an estimate of private sector output for the preceding month by combining information obtained from surveys of around 750 manufacturing and service sector companies. Results are synthesised into a single index which can range between zero and 100. A reading above (below) 50 signals rising (falling) output versus the previous month and the closer to 100 (zero) the faster is output growing (contracting). The report also contains the final estimate of the services PMI. The data are provided by Markit.
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 purchasing managers' manufacturing indexes, 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.
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