The French service sector experienced a modest reversal in mid-Q2. Activity increased in April following a nearly year-long decline, but it experienced a slight decrease in May. Despite this, employment continued to rise, and domestic demand stimulated sales. The weakest increases in input costs and output charges since mid-2021 have alleviated inflationary pressures. The services PMI experienced a minor contraction from 51.3 in April to 49.3 in May.

The Composite output index fell from 50.5 in April to 48.9 in May, marking the second decline this year and signalling a return to contraction for the French private sector. Despite a smaller decline in factory orders and a higher demand for services, domestic markets drove the increase in new business in over a year. However, new export sales fell sharply. Employment continued to grow for the fourth month, led entirely by the services sector, while private sector work backlogs saw a slight decline.

Overall, the indices reflect a mixed economic landscape where domestic demand and employment growth are bright spots, but overall economic contraction and challenges in export markets raise concerns about the sustainability of the economic recovery.

The key composite output index is expected to be unrevised at 49.1, down from April's final 50.5.

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.