Private sector business activity in France fell sharply in June and into contraction for the first time since January. The flash composite output index plunged 3.9 points from May's final 51.2 to 47.3, a 28-month low.

The headline decline was mainly attributable to services, where the sector PMI index dropped from May's final 52.5 to 48.0, a 28-month low. The manufacturing PMI also fell but only modesty, slipping from the May 45.7 final to 45.5, a 37-month trough.

Survey respondents attributed the fall in business activity at the end of the quarter to inflation, more challenging business conditions such as difficulties in securing credit and, in some cases, business shutdowns. Weak demand was also noted, as aggregate new orders declined at the sharpest rate since November 2020, with the fall experienced by both sectors, though it was most pronounced at manufacturers. Export orders also continued to fall in June.

Employment advanced again in June though job creation eased to a 6-month low, with most hiring occuring in the service sector while the manufacturing workforce modestly declined. Business confidence deteriorated to its weakest level in over three years.

Meantime, overall inflation rates of input costs and output prices slowed. But the picture is mixed, because while manufacturers' input cost inflation eased to its weakest mark since March 2016 amid reports of falling raw material prices, service providers reported that rising wage pressures are still pushing up their expenses. And although overall output price inflation slowed to a 22-month low, manufacturers are discounting prices for the first time since June 2020, while service providers continue to raise their fees.

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.