French economic activity extended its contraction to a ninth consecutive month, as a strong rebound in manufacturing wasn't enough to make up for weakness in the services sector.

Manufacturing reached its highest level in over two years, climbing to 49.5 in May, just below the expansion threshold of 50, from 48.7 in April. Consumer caution, postponed orders, and low demand weighted on the services sector which also remains in contraction at 47.4, a marginal improvement from 47.3 in April.

As a result, the composite index rose to 48.0 in May, a two-month high, from 47.8 the previous month. Despite increased manufacturing activity, businesses are viewing the coming twelve months with trepidation.

Geopolitical uncertainty, likely due to the tariff environment, current economic conditions, and a reluctant consumer are leading to pessimism not seen since reaching a low in April 2020.

Supply chain readjustment and French efforts to lure increased investment could have a positive effect on sentiment, but will take time. In the meantime, there is no immediate panacea for a rapid improvement with seemingly no respite from tariffs.

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.