The French service sector ended 2024 on a subdued note, marked by a continued decline below the threshold of 50 in the composite index, even though the pace of contraction eased to 47.5 in December from 45.9 in the prior month. For the services index, the pace of contraction eased as the services PMI rose to 49.3, 1.1 points above the consensus and signalling a marginal downturn in service activities. Weak client demand, political uncertainty, and cautious spending habits drove declines in new orders, including exports, although the pace of contraction slowed compared to earlier months.

For the first time in four years, services employment contracted, driven by redundancies and non-renewal of temporary contracts. Yet, the reduction in workforce numbers was modest, and firms managed to reduce backlogs of work, albeit at the slowest rate in four months. Growth expectations for the year ahead improved slightly but remained historically low, hindered by political and market uncertainties.

On a brighter note, inflationary pressures retreated, with input costs and output prices rising slowly, offering some relief to firms. Despite ongoing challenges, the improved optimism suggests the potential for a gradual recovery in the service sector moving into 2025. The latest update takes the French RPI to 11 and RPI-P to 13. This means that economic activities, in general, are ahead of market estimates.

No change from the flash is the call for composite final at 46.7 and services final at 48.2.

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.