The French private sector faced another challenging month in December. A fourth consecutive contraction was reflected in the composite PMI weighing in at 46.7, slightly up from November's 45.9 but still well below the 50-expansion threshold and 0.2 points below the consensus forecast. This modest monthly improvement indicates a deceleration in the rate of decline but still highlights persistent weaknesses across the services and manufacturing sectors.

Manufacturing continued to struggle, with the sector PMI at 41.9, a 55-month low and weighed down by weak demand and industry-specific challenges in construction and automotives. Services fared relatively better, with a PMI of 48.2, but also remained in contraction, affected by political instability and declining sales. Demand conditions, both domestic and foreign, were subdued, with new export orders falling more sharply than domestic new business.

Employment took a significant hit, experiencing its sharpest drop since September 2020, as businesses grappled with excess capacity and diminished workloads. Despite these challenges, business sentiment edged into optimistic territory, although confidence remained historically low due to political uncertainties.

In summary, while the pace of decline eased slightly in December, broad-based weaknesses, particularly in manufacturing, and political uncertainty continue to hinder France's economic recovery. Today's update puts the French RPI at minus 23 and the RPI-P at minus 12, meaning that economic activity in general is lagging behind market estimates.

The headline composite index is seen rising from November's final 45.9 to 46.9, still well short of the 50-expansion threshold.

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.