French private sector business activity contracted further at the start of the year and by more than expected. At just 44.2, the flash composite output index was a full point short of the market consensus, 0.6 points shy of its final December print and nearly 6 points below the 50-expansion threshold. This was also its worst reading in four months.

The headline drop mainly reflected additional weakness in services where the flash sector PMI dropped from a final 45.7 at year-end to 45.0, also a 4-month trough. Its manufacturing counterpart actually edged up from 42.1 to 43.2 but, within this, output (40.5 after 40.7) declined at its steepest rate in three-and-a-half years.

Aggregate new orders decreased for a ninth straight month and backlogs were down for a sixth. Employment was similarly trimmed for a third month in a row, although the fall here was only marginal. Business expectations about the coming year deteriorated and so remained well below their historic norm.

Even so, inflationary pressures were a little firmer. Input costs rose at a sharper pace, in part due to higher wages, but the inflation rate was still quite modest. Output prices similarly accelerated, climbing by the most in the last seven months.

In sum, the January update paints a miserable picture of the French economy and points to a weak first quarter for GDP. However, while trimming the French RPI to 11 and the RPI-P to 15, both values show economic activity in general still running slightly hotter than expected.

Substantial contraction is expected for January's manufacturing PMI, at a consensus 42.5 versus 42.1. Services are seen 46.0 at versus 45.7.

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.