FR: Business Climate Indicator

Thu Feb 23 01:45:00 CST 2017

Consensus Actual Previous
Level 106 107 106

INSEE's latest look at sentiment in French manufacturing found a further slight improvement in February. At 107, the headline climate indicator was up a notch on its unrevised January reading and at its highest level since June 2011.

Actual past output (6 after 12) cooled but orders (minus 8 after minus 10) were up and executives' personal production expectations (20 after 13) climbed sharply. That said, the general industry outlook (5 after 7) was a little more subdued.

Elsewhere, the news was less bullish with sector morale indicators unchanged in both services (103) and construction (99) and notably weaker in retail trade (103 after 106). As a result, the overall economy climate index was steady at 104, just 1 point short of its recent peak in December 2016 and comfortably above its long-run average.

In sum, today's INSEE report is not as upbeat as the flash PMIs (see Tuesday's calendar entry) but still in line with an economic recovery that is, at long last, gaining some traction. The national central bank is forecasting first quarter GDP growth of 0.3 percent, on current trends this might be a little on the soft side.

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.