Sentiment in manufacturing unexpectedly improved in September. At 103, INSEE's business climate indicator was up 2 points versus its unrevised August print and so fully reversed that month's decline. However, it was still a couple of points short of its April high.
The recovery was facilitated by an increases in both past output (8 after 6) and new orders and demand (minus 14 after minus 16) although within the latter the overseas component (minus 10 after minus 9) edged slightly lower. There was also a marked upturn in executives' personal outlook for manufacturing production (10 after 2) as well as a similarly sharp bounce in overall industry expectations (7 after 1).
Elsewhere the picture was somewhat more subdued. Although morale in services (102 after 101) was a little more upbeat, construction (95) was only flat and confidence deteriorated in both retail trade (102 after 103) and wholesale trade (99 after 104). Taken together, the sector results saw overall economy sentiment creep a point higher to 102 but remain within the tight 100-102 range seen since August last year.
Today's findings should be reflected in a modest rise in the September flash PMIs tomorrow which, in turn, would be good news for a return to positive real GDP growth this quarter.
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.