French Private Sector Output Falls at Slowest Rate in 4 Months

July 25, 2012 /

Latest Flash PMI® data indicated that the rate of contraction in French private sector output eased further in July.

The Markit Flash France Composite Output Index, based on around 85% of normal monthly survey replies, rose to 48.0, from 47.3. That was its highest level since March and indicative of only a modest rate of decline.

The weaker decline in overall private sector output was driven by a stabilisation of activity in the service sector. This ended a three-month period of falling activity at service providers. In contrast, manufacturers reported the steepest fall in output since April 2009.

New business received by French private sector companies decreased for a fifth successive month in July. That said, the rate of decline eased to the slowest since March, reflecting a weaker fall in new work at service providers.

Manufacturers, however, indicated a sharper contraction of new orders, with
the rate of decline only marginally slower than May’s 37-month record. Although the domestic market remained the principal area of fragility, there was also a deteriorating trend in export sales, which fell at the fastest rate in eight months.

Backlogs of work fell for a seventh consecutive month in July. The rate of contraction was slightly faster than in June, as a sharper drop in outstanding business at manufacturers outweighed a slower fall at service providers.

There was disappointing news on the employment front, with private sector staffing levels falling at the sharpest rate since December 2009. Deeper job
cuts were reported in both the manufacturing and service sectors, with the latest reductions the most marked for 34 and 30 months respectively.

Input prices faced by French private sector companies fell during July. Although only marginal, it was the first reduction in costs since October
2009. Manufacturers registered the steepest decline in purchase prices for just under three years, reflecting lower costs for a range of raw materials.

Input price inflation in the service sector remained modest and well below the survey’s longrun average. Prices charged by French private sector firms
decreased for the third month running in July, and at a similar rate as in the previous month. Discounting was centred on the service sector, with
manufacturers signalling broadly stable selling prices.

Future expectations among French service providers slipped further in July, despite a stabilisation of current activity. Optimism fell for a fourth straight month to its lowest level since March 2009. A general sense of economic uncertainty was largely blamed for the drop in sentiment.

Jack Kennedy, Senior Economist at Markit and author of the Flash France PMI
®, said: “A resilient service sector performance compensated for a sharper fall in manufacturing output during July. However, conditions clearly remain fragile, with overall private sector activity declining for the fifth consecutive month, and the rate of job shedding accelerating to the sharpest for over two-and-a-half years in July. Faced with a weak economic climate both domestically and abroad, combined with ongoing uncertainty over the
future of the Eurozone, businesses are finding little reason for optimism at present, and it was therefore no surprise to see service sector future
expectations weaken further to a 40-month low.”


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