Stable French Service Sector Activity During July

Steven Bobson, Europe & Americas Editor
August 06, 2012 /

French service providers reported that business activity was unchanged during July.

That followed declines in each of the previous three months. New business and backlogs of work both fell at slower rates, but companies nevertheless made sharper cuts to staffing levels.

Competitive pressures led to a further drop in output charges, despite another rise in input costs. Panel members signalled a weaker outlook with regards to future activity, with optimism falling to the lowest level for almost three-and-a-half years.

The seasonally adjusted final Markit France Services Business Activity Index – which is based on a single question asking respondents to report on the actual change in business activity at their companies compared with one month ago – posted 50.0 in July, up from 47.9 in June.

In contrast, manufacturers reported a steeper fall in output during July, with the rate of decline accelerating to the fastest since April 2009. Overall private sector activity was down for the fifth successive month, although the latest drop was the slowest since March.

The level of new business placed with French service providers fell for the fourth month running during July, albeit at the slowest rate in that sequence. Anecdotal evidence suggested that economic uncertainty had led a number of clients to postpone spending decisions.

Manufacturers reported a further marked decrease in new orders during July, with the rate of contraction accelerating since the previous month. However, overall new business across the private sector fell at the slowest rate since March.

The rate of decline in service sector outstanding business also eased in July. The latest fall in unfinished work was the seventh in successive months, although the weakest since March.

Backlogs also decreased in manufacturing, with the latest reduction the sharpest since May 2009. Across the private sector overall, outstanding business fell at a solid and slightly faster pace during July.

Employment showed a deteriorating trend, with the pace of contraction accelerating to the sharpest since March 2010. Job losses were attributed by panellists to cost-saving strategies, often including decisions not to replace voluntary leavers.

With manufacturers also recording a steeper drop in staffing levels, overall employment across the French private sector fell at the fastest rate since January 2010.

Input prices faced by French service providers continued to rise in July, with the rate of inflation remaining moderate. Higher labour-related and raw material prices were reported to have driven the
latest increase in costs.

Manufacturers signalled a further drop in input prices during July, with the latest fall the steepest since August 2009. Across the private sector
overall, input costs fell for the first time in 33 months, albeit only marginally.

Service providers reduced their charges further in July. The rate of decline in output prices held steady from June’s 29-month record. Anecdotal evidence suggested that competitive pressures had contributed to the decrease in selling prices.

Manufacturers meanwhile signaled broadly unchanged selling prices during July. Across the private sector as a whole, charges decreased for the third month running.

Business confidence in the French service sector slipped further in July, reaching its lowest level since February 2009. Panelists commented on tough economic conditions and uncertainty among clients as factors weighing on sentiment. That said, service providers on balance still anticipate a slight rise in activity over the next 12 months.

New commercial strategies, investment plans and government initiatives are among the factors expected by panellists to support growth of activity.

Jack Kennedy, Senior Economist at Markit and author of the France Services PMI®, said: “The French service sector showed resilience in July, ending a period of falling activity throughout the second
quarter. However, the overall economy remains fragile at the start of Q3, as PMI data showed that the improvement in services was offset by a deepening manufacturing downturn.

“Moreover, the details of the services report showed future expectations slumping further to a near three and-a-half year low. With GDP looking likely to have dipped in Q2, July’s PMI figures suggest that the second half of the year looks set to be a continued
hard slog.”


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