Despite an improvement from flash readings over the previous month, France's service sector ended the first quarter in contraction. The services PMI rose to 47.9 in March from a flash reading of 46.6 and 45.3 in February. It's the worst quarterly performance since the fourth-quarter of 2023.

The March composite index improved 1 point from the flash reading to 48.0, and even more from February's 45.1. Still, there's no getting around the fact that French industry is facing strong headwinds.

Weaker demand resulted in reduced work backlogs as customers showed less enthusiasm amid economic uncertainty, leading firms to cut their workforces. This trend will most likely be exacerbated by the tariffs the US announced yesterday.

The US runs a trade surplus with Europe on services, and the EU has the option of imposing tariffs on them. Should the EU opt to go down that road, that's unlikely to lead to any short-term improvement in the outlooks as activity expectations for the coming twelve months are below their long-term average.

While input prices continued to moderate, wage costs are on the rise, and the environment is making it difficult for companies to pass the increases downstream.

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.