France's service sector remained in contraction as January's PMI fell to 48.2, marking five consecutive months of decline. The broader composite PMI showed marginal improvement (47.6 from 47.5) but remained below the neutral 50.0 threshold, signalling ongoing economic weakness. A key concern was deteriorating demand, with businesses citing political uncertainty and weak client interest as major constraints. However, the decline in new business was softer than previous months, buoyed by improving export orders. Backlog clearance slowed, suggesting that firms are adjusting to lower demand rather than being overwhelmed by it.

The employment landscape worsened, with workforce reductions reaching their highest level since October 2020. Companies cited voluntary departures and contract expirations as reasons for downsizing, reflecting broader caution in workforce planning. In a surprising shift, service providers reduced prices for the first time since April 2021, despite facing rising cost pressures, particularly from wage inflation and supplier costs. This pricing strategy, likely aimed at stimulating demand, underscores the fragility of business confidence, which has sunk to its lowest point since May 2020.

With business optimism at a 56-month low, France's service sector remains in precarious territory, needing stronger domestic and global demand to regain momentum, and leaving the RPI and RI-P at minus 14 and minus 10 respectively. This means that economic activities are slightly behind the market expectations of the French economy.

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.