FR: Business Climate Indicator

Thu Aug 24 01:45:00 CDT 2017

Actual Previous Revised
Level 111 109 108

INSEE's new business climate survey found markedly improved sentiment in French manufacturing. At 111, the headline index was up 3 points from the downward revised July reading and significantly above the its long-term average of 100, attaining the highest level since December 2007.

The increase was largely due to a sharp rise in past output (23 after 9), aided by more optimistic personal expectations on future production by executives (15 after 11). Order books were slightly stronger too, albeit still negative (minus 2 after minus 3). Export order books were unchanged at minus 1. The size of the first two positive contributions overshadowed minor declines by the remaining components, with finished goods inventory down 1 point (4 after 5) and general production expectations also down a point ( 20 after 21).

The overall improvement in manufacturing comes mainly from the manufacture of food products and beverages and the very broad category of "other manufacturing", partly offset by a downturn in the manufacture of machinery and equipment.

In other sectors, business confidence in services improved again(106 after 104), but fell, while still remaining favorable, in retail trade (108 after 112), which might mean that August was not the best month for household spending. In any event, the economy-wide climate index rose 1 point to 109, an increase of 5 point since January and the strongest mark since April 2011.

Today's results confirm the surprisingly strong performance by French manufacturing seen in the flash PMI survey yesterday, showing the preliminary index rising by a stronger than expected 1.1 points to 55.8, a 76-month high. On a minor sour note, that report also indicated a weaker showing for services in August, a greater than expected 0.5 decline to 55.5, in contrast with the 2 point increase seen in the INSEE survey. But the main takeaway of these surveys is the upsurge in French manufacturing, which is impressive, and if borne out in the hard data, should lead to upward revisions in third quarter real GDP growth.

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.