The French services sector experienced a significant downturn in February 2024 at 45.1, marking the steepest decline in activity since October 2023. A key driver of this contraction was a sharp drop in demand as businesses struggled with reduced new orders, client hesitancy, and weak economic conditions. The seasonally adjusted services PMI fell to 45.3, indicating six consecutive months of declining output. Notably, the downturn in domestic demand was more pronounced than in export business, highlighting internal economic fragility.

In response to dwindling new work, firms increasingly relied on backlogs, accelerating their depletion at the fastest rate in 15 months. Employment levels also suffered, with job losses reaching their most severe since August 2020. Cost pressures intensified, driven by rising input costs, wages, and service fees, yet firms hesitated to pass these costs onto customers due to competitive pressures.

Despite a slight improvement in business confidence, overall optimism remained fragile, hovering near a 56-month low. This suggests that while firms anticipate some stability ahead, underlying structural weaknesses persist, making a swift recovery unlikely. The findings underscore a challenging outlook for France's service sector, with cautious business sentiment and continued economic headwinds. This latest update leaves the RPI at minus 14 and the RPI-P at minus 10, meaning that economic activities remain slightly behind 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.