After flirting with a move into expansionary territory with in the June reading and the flash result for July, the French private sector saw further contraction in the final data.

In July, the composite index fell to 48.6 from its initial reading of 49.6 and 49.2 in June as order books and output deteriorated further. Economists had been expecting no change from the flash reading. The services index fell to 48.5 in July, well below the flash reading of 49.7 and June's 49.6.

The decline appears to be due to the domestic sector, weighed down by flagging demand, lower activity for their clients, and staffing shortages all of which pressured output. There was a modest increase in new business from abroad.

Political uncertainly and worries over demand are weighing on sentiment for the coming twelve months. Some 24 percent of firms expect increased activity, but 23 percent expect contraction. This has manifested itself in the hiring process with the pace of temporary employment slowing as contracts are not renewed as often. At the same time, departing employees are being replaced at a less frequent rate.

After a surprise increase in second quarter GDP of 0.3 percent, driven primarily by inventory accumulation, the third quarter as seen in today's data is not off to a stellar start. The EU tariff agreement, while vague, could help give companies a framework for planning. Still, with austerity measures being debated by the government, a meaningful increase in confidence will not likely materialize.

No change from the flash at 49.6 is the call for the July composite final, up slightly from 49.2 in the June final. No change is expected from the flash at 49.7 for services versus 49.6 in the June final.

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.