Private sector business activity continued to contract in February but at a much slower pace than at the start of the year. The flash composite output index weighed in at 47.7, up from January's final 44.6 and a 9-month high. The latest print was also more than 2 points stronger than the market consensus but still short of the 50-expansion threshold.

The headline gain reflected less weak performances in both manufacturing and services. In the former, the flash sector PMI climbed from January's final 43.1 to 46.8, still well in contraction territory but its best outturn in 11 months. Its service sector counterpart clocked in at 48.0, up from 45.4 and an 8-month high.

Manufacturing output (46.3) hit its strongest mark in almost a year as aggregate new orders fell by the least since last May. Backlogs declined again but by less than in January and overall employment saw its first rise since October 2023 due to an increase in services. Against this backdrop, business expectations about the coming year improved to a 7-month peak.

Helping matters, inflationary pressures eased. Input costs rose at the slowest rate since March 2021 and paved the way for a marked fall in output price inflation which touched a 3-year low. Significantly, the re-routing of ships away from the Red Sea had only a limited effect. Delivery times lengthened but by less than in January and manufacturers' input costs fell further.

In sum, the February update paints a much less bleak picture of the French economy but does not remove the possibility of a contraction in first quarter GDP. That said, with the French RPI now at 21 and the RPI-P at 25, economic activity in general is still running slightly hotter than expected.

The flash data are expected to show a slower pace of contraction in overall business activity with the headline composite output index edging up from January's final 44.6 to 45.5.

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.