French manufacturing data sends mixed signals

Manufacturing activity in France faltered in August and sales of new cars slumped, data showed on Monday, clouding recovery of the economy from recession in the second quarter. However the latest data also showed signs that the underlying climate, notably in the critically important area of export orders, may be steadying. The purchasing managers' index of activity in the manufacturing sector had rallied in July to give a reading of 49.7, but this was also the reading for August in the latest figures on Monday. This means that the index, the result of a survey by the Markit company, has stabilised below the point of 50, which indicates expansion of contraction in the sector. Official growth data on August 14 showed that the French economy grew by 0.5 percent in the second quarter, showing unexpectedly firm recovery from a shallow recession. But analysts warned that this had been driven largely by unseasonal spending on energy during an exceptionally long winter, and that the trend might not last. The left-wing government, under strong pressures over weak growth and competitiveness, high unemployment, excessive public deficit and high taxes, scrutinises each new set of data to see if the signs bear out its forecasts that recovery is on the doorstep. The quarterly growth figure led the official statistics institute to upgrade its outlook for the year to growth of 0.1 percent, in line with the government's estimate, instead of minus 0.1 percent. However, President Francois Hollande, who has assured that the upward trend of unemployment will be inversed by the end of the year, said at the end of last week that in view of the growth data, the government might upgrade slightly its forecast for growth in 2013. The PMI index is considered to be a good leading indicator of how activity in the sector will develop and is also seen as an important guide to the broader trend of the economy. The latest outcome means that the index has fallen short of the halfway mark to expansion for 18 months in a row. Markit concluded that "overall business conditions in the French manufacturing sector deteriorated slightly in August." In particular "the amount of new orders placed with manufacturers in France fell further in August, extending the current period of contraction to 26 months." But the rate of decline was slight. The chief economic at Markit, Jack Kennedy, commented: "French manufacturing output slipped back into contraction in August, but a broad stabilisation of new orders suggests that underlying demand is moving onto a firmer footing." He concluded: "Overall, the latest data suggest that the manufacturing sector is starting to hold its ground a little better having been under the cosh in recent times." Meanwhile trade data from French car manufacturers showed that sales of new cars plunged by 10.9 percent on an unadjusted basis and on a 12-month comparison in August, outweighing a slight recovery in July. "The month of August is usually weak," a spokesman for the CCFA committee of manufacturers said. But the figure of total new sales of 85,565 "is really low," he commented. In the first eight months of the year sales of new cars in France fell by 9.8 percent, or by 8.7 percent adjusted for the number of working days by comparison with sales in the same period of last year. The auto sector is an important component of French industry.