INSEE's latest survey of sentiment in French manufacturing showed no change this month, in line with market expectations. At 106, the business climate indicator matched its highest reading since July 2011 and so would seem to confirm a useful pick-up in the sector's business activity since the middle of the fourth quarter.
Even so, the survey details were somewhat mixed. Recent past output (12 after 19 in December) slowed appreciably and overall orders (6 after 8) similarly cooled somewhat. However, executives' personal outlook on future production (11 after 8) was more optimistic and the general industry outlook assessment (8 after 6) moved in the right direction too.
Elsewhere, developments were equally patchy. Hence improving morale in construction (99 after 98) and wholesale trade (102 after 98) contrasted with a dip in retail (106 after 107) and, more worryingly, a marked decline in services (102 after 106). As a result, the whole economy climate indicator was down a point at 104, although this was still a couple of points above its November print.
Today's findings are less optimistic than yesterday's flash January PMI results, notably for services. However, both surveys suggest that in the aggregate the French economy may have shifted up a gear. This will need to be sustained if current deflation risks are to be eliminated.
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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