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Economy in Brief

French Industry Noticeably More Optimistic, Unlike Neighbors
by Carol Stone October 28, 2004

Unlike other major European countries discussed here in the last few days, industry leaders in France are increasingly optimistic. The overall Business Climate Index, a composite of their assessment of trends in production and orders, reached 108 in October, its highest since March 2001. Similarly, expectations for the trend in production going forward had a positive/negative balance of +16 for October, the most favorable reading since February 2001.

Several market segments are participating in the apparent business improvement. Markets for consumer goods have gained the most in the most recent months, as the percent balance indicator has jumped from -2 in July to +17 in October. However, this sector tends to be volatile, so such a pattern may not be sustained. Intermediate materials have moved less dramatically in the short-run, but generally experience smoother, longer-lasting swings. Currently, that segment's balance indicator stands at +16, unchanged in the month, but in a generally favorable position since the middle of last year. Mechanical business equipment actually eased a bit in October to +23 from September's +26, but it had improved more and stayed higher in previous months.

We find this good performance a bit perplexing. The two major macroeconomic forces today, the euro exchange rate and oil prices are international in scope, affecting every major economy. Possibly French industry is experiencing the evolution of a favorable push due to the flattening of the euro that began in March. One of the industries showing a pick-up is mineral products, suggesting that France may be able to benefit more than its neighbors from rising petroleum prices. These suggestions are just conjecture, however, and it remains to be seen how long this attractive business sentiment will be sustained.

Seasonally Adjusted, % Balance (except as noted) Oct 2004 Sept 2004 Aug 2004 Oct 
2003 2002 2001
Business Climate Index 108 106 105 96 95 97 102
Likely Production Trend 16 14 11 5 1 5 5
Selected Type of Goods:              
  Consumer Goods 17 6 2 -6 1 5 13
  Intermediate Goods 16 16 11 7 -4 2 -5
Mechanical Investment Goods 23 26 21 3 -1 -4 -1
Electronic Investment Goods 5 2 10 0 5 -9 4
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