The French economy contracted sharply in November and by much more than expected with the flash composite PMI dropping to 44.8, its lowest level in 10 months. Both manufacturing and services sectors faced intensified downturns with the manufacturing PMI falling to 43.2 and services PMI to 45.7, reflecting weaker demand domestically and abroad.

New order volumes plummeted at the sharpest rate in four years, driven by geopolitical uncertainties and reduced export demand, particularly from the US. The downturn in key industries such as automotive, construction, and cosmetics further exacerbated the decline. Services firms reported client hesitation due to economic and political uncertainty, leading to the sector's fastest activity drop since January.

Despite this bleak outlook, private sector employment rebounded modestly, achieving the highest job creation rate in six months, albeit confined to services. Input costs surged, driven by rising salaries, while manufacturers discounted factory gate prices to stay competitive.

With business sentiment turning pessimistic for the first time since May 2020, concerns over prolonged weak demand and industry-specific challenges suggest the contraction trend could persist into 2025. However, today's update only trims both the RPI and RPI-P to minus 4, meaning that economic activity in general is performing much as expected.

Expectations call for a very contractionary 44.6 for the manufacturing flash and 49.0 for services. The overall output PMI is seen flat at 48.1.

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.