The composite PMI improved to 49.6 in July from 49.2 in June thereby reaching an 11 month high as both the manufacturing and services components increased slightly. Despite the improvement, today's result marks 11 consecutive months of contraction for the French private sector.

Manufacturing rose to 48.4 in July from 48.1 in June and fell short of economists' expectations which called for an increase to 48.8. Services improved to 49.7 in July from 49.6, also reaching an 11-month high. That also fell short of the median forecast which called for an improvement to 50.

Critically, sentiment about expectations a year out, which had been resilient, declined to its weakest level since November, likely in the absence of an EU trade deal with the US and the French budget. Firms raised concerns over domestic political uncertainty and, sales prospects and contracting budgets.

This led to French companies shedding jobs at the fastest rate in three months, although that was confined to the services sector. Manufacturing saw a slight increase.

The proposed budget calls for austerity measures which would hit consumer spending as disposable income shrinks. Coupled with uncertainty around a trade agreement with the US, businesses are facing heightened uncertainty. The drop in the economic outlook shows reality might be setting in.

The consensus looks for the PMI manufacturing at 48.8 for July versus 48.1 in the June final.
Forecasters expect the services index at 50.0 in July versus 49.6 in in the June final.

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.