France's service sector contracted modestly in October, despite the flash services PMI being revised up to 49.2, a 7-month low. The final composite PMI output index was also revised up to 48.1 but similarly remained short of the 50-growth threshold. Weakening demand drove the decline, as new business orders fell at the fastest pace since January, with both domestic and foreign sales shrinking. Export business saw its steepest drop in five months, contributing to reduced client numbers and lower footfall.

Labour market activity slowed, with firms hesitant to hire. Fixed-term contracts were added in some cases, but many temporary contracts went unrenewed. Business confidence weakened, with firms anticipating fewer customers and heightened competition in the coming months.

Despite muted cost pressures, service providers marginally raised prices in October, primarily to address salary expenses. However, input price inflation remained near a multi-year low, reflecting tight cost management. This delicate balance aims to cushion financial pressures without further dampening demand.

October's data highlights a tough start to Q4, with shrinking demand and subdued business sentiment signalling continued challenges for France's service sector. Moreover, this latest update takes the RPI to minus 18 and the RPI-P to minus 21, meaning that economic activity is falling short of market expectations.

No revisions are expected to the flash data.

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.