Sentiment in French manufacturing surprisingly deteriorated this month. From an unrevised 104 in March, the headline index shed 3 points and, at 101, was well below the market consensus. However, it was just above its 100 long-run average.

April's decline, which was the steepest since March 2022 just after the Russian invasion of Ukraine, masked stable output (unchanged at 10 percent) and reflected instead weaker order books (minus 17 percent after minus 13 percent). The latter hit a 2-year low on the back of contracting domestic demand. Meantime, personal production expectations (5 percent after 10 percent) were marked down sharply and general production expectations (minus 4 percent after minus 1 percent) were also less buoyant. Expected headcount (11 percent after 16 percent) saw its first fall since January and expected selling prices (13 percent after 28 percent) matched their lowest reading since January 2021.

Across the other main sectors, sentiment worsened in services (103 after 105) but was flat in construction (111) and improved marginally in retail trade (100 after 99). As a result, the economy-wide index dipped another point to 102.

Today's rather soft update probably makes for some downside risk to tomorrow's flash PMI survey and certainly suggests that manufacturing is still struggling. It also reduces the French ECDI to minus 7 and the ECDI-P to minus 30, both measures now indicating overall economic underperformance, particularly in real activity.

Sentiment in manufacturing is seen flat at 104 in April.

INSEE is France's National Institute of Statistics and Economic Studies. 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.