French private sector activity was weaker in October than originally reported, according to final PMI data released on Monday, suggesting a continued deterioration in economic conditions after a marked slowdown in the third quarter.

The composite index declined to 44.6, below the flash estimate of 45.3, although slightly above the September reading of 44.1. While the October contraction was less severe than recorded in the previous month, it's still one of the largest declines in nearly three years, according to S&P Global, which publishes the data.

The weakness was widespread, with manufacturing particularly hard hit by a sharp fall in new orders. Private sector backlogs shrank at the fastest pace since November of 2020. Despite that, operating costs rose by the largest margin since May, although average prices charged rose only modestly.

Service sector activity was also gloomier than reported last month, with the service PMI index hitting 45.2, above the September reading of 44.4, but well below the flash estimate of 46.1.

Activity was hit by inflationary pressures and higher interest rates, particularly the real estate sector. According to PMI data, the service sector has now declined for six consecutive months.

Despite that, service firms continued to expand work forces, with survey respondents reporting rising wage costs. However, manufacturing businesses cut staff at a slightly faster pace than in September.

Employment and wage costs remain a key metric for European rate setters, with the bloc's labour market having remained remarkably resilient in the face of aggressive monetary policy tightening. But there have been signs of looser employment conditions of late, as unemployment in the eurozone unexpectedly rose by a tenth of a percentage point to 6.5 percent in September.

Third quarter French jobless data are due for release on November 15th, after increasing to 7.2 percent in the second quarter from 7.1 percent in the previous three months.

While the European Central Bank will be closely monitoring wage data, any sign of emerging slack in the labour market will add strength to the market view that the ECB is done hiking interest rates, particularly after a sharp reduction in headline inflation last month. If the weakness stretches into the fourth quarter and beyond, the market narrative may shift to discussions of when the Bank might begin cutting rates, despite ECB President Christine Lagarde's recent insistence that the governing council has yet to broach that topic.

The PMI data take the French RPI to minus 4 and the RPI-P to 4, meaning that the economy is performing in line with market expectations.

No revisions are expected leaving the key composite output index at 45.3, up from September's final 44.1.

The Composite Purchasing Managers' Index (PMI) provides an estimate of private sector output for the preceding month by combining information obtained from surveys of around 750 manufacturing and service sector companies. Results are synthesised into a single index which can range between zero and 100. A reading above (below) 50 signals rising (falling) output versus the previous month and the closer to 100 (zero) the faster is output growing (contracting). The report also contains the final estimate of the services PMI. The data are provided 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.