France remains a quintessential e-Zone economy. Its consumer sector has gone slack but capital goods output is still churning up a storm. Still capital goods is lagging sector. Its output can tend to stay strong as its industries turn out goods that are legacy of strong demand earlier in the cycle; it can lag in recovery as well, as demand for new equipments waits on the moment that new capital constraints are encountered. Capital goods is lagging sector in the economy. For this reason I do not take its ‘enduring strength’ as sign that it will bootstrap the rest of the economy into expansion.

The chart above shows the longer term relationship between consumer goods and capital goods output trends in France. History also tells us that the weakness in the consumer sector is something to be wary of – the sector tends to be a harbinger.

The banking sector problems in Europe and in France, the strong euro exchange rate, the slippage in various domestic surveys, give us even more reason to be wary of what has been ongoing strength in the capital goods sector. It seems to have become a sector with increasingly poor fundamentals despite its resilience.