Growth of private sector business activity was negative for a third straight month at the start of the year. The flash composite output index weighed in a disappointingly low 49.0, just down from December's final 49.1 and 0.5 points short of the market consensus.

The headline deterioration was wholly attributable to services where the flash sector PMI fell from December's final 49.5 to 49.2, a 22-month trough. By contrast, its manufacturing counterpart rose from 49.2 to 50.8, a 7-month high and back above the 50-expansion threshold. Within this, output (48.0) still fell but at a slower pace than previously.

Aggregate new orders saw a sixth successive decline and, ominously, at a slightly faster pace than in December. Backlogs were also lower but employment growth was the highest in three months and business confidence improved markedly. In fact, overall optimism about the year ahead was the strongest in six months as sentiment at both manufacturers and service providers posted rises.

Meantime, input cost inflation continued to trend down as operating expenses rose at the slowest pace since February 2022. Companies in both sectors observed weaker cost pressures, although inflation in services remained much stronger than in manufacturing. Even so, output price inflation accelerated to a 3-month high, reflecting more aggressive price setting in both sectors.

Today's update suggests that the French economy continued to struggle in January and another fall in demand does not bode well for the rest of the quarter. Both the French ECDI and ECDI-P have been largely sub-zero since late November but today's update puts the former at minus 7 and the latter at 10.

Both manufacturing and services were just below the 50-line in December and only the most marginal improvement is expected for January; 49.7 is the consensus for both manufacturing and services.

The flash Composite Purchasing Managers' Index (PMI) provides an early estimate of current private sector business activity by combining information obtained from surveys of around 1,000 manufacturing and service sector companies. The flash data are released around ten days ahead of the final report and are typically based upon around 85 percent of the full survey sample. Results covering a range of variables including manufacturing output, employment, new orders, backlogs and prices are synthesised into a single index which can range between zero and 100. A reading above (below) 50 signals rising (falling) activity versus the previous month and the closer to 100 (zero) the faster is activity growing (contracting). The report also contains flash estimates of the manufacturing and services PMIs. The data are produced by S&P Global.

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.