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Economy in Brief

INSEE Manufacturing Index Moves Higher
by Robert Brusca  July 22, 2021

French industrial climate took a strong step higher in July, logging a top 10 percentile reading at a 92.5 percentile standing. This is the highest reading since April 2018 when it was duplicated. The climate reading has improved by 9.3 points since the virus struck in February 2020.

The table offers three different types of assessments of current activity. There is the minor trend discerned by looking at the last four observations. There is the percentile rank standing and the mean which allow comparisons with the past in slightly different ways. And there is the change in the various metrics since the virus struck, a benchmark to February 2020. Together these various approaches can help to give a good fix on where French industry is standings and how it is doing.

Manufacturing production expectations are still quite strong, but the reading in July took a sizeable step backward to settle at 20.4 after reaching 25.3 in June. June had been a huge step up as that reading rose from April’s 2.2 to May’s 16.9 then to 25.3 in June. Despite the month’s setback, production expectations hold most of that improvement that came on suddenly in June. The recent trend is well above its historic median and hovers in the top 10 percentile of historically ranked data. The recent trend has improved by 20 points since February 2020- most of that attained in just the last three months.

The personal likely trend (PLT) is the trend that each surveyed participant applies to his or her own firm in looking ahead. It is not macro; it is micro and although it is also a trend it looks ahead and is expectational. This reading moved up strongly in July and built upon a series of improvements that trace back to March of this year. The PLT is well above its mean and has an historic top two percentile standing. Its improvement since February 2020 is 13.9 points.

Orders and demand log a negative reading for July, but that is simply a characteristic of this series whose mean is at -18. The -2.5 reading for July is solid and represents a strong step up from -7.1 in June and part of a trend for ongoing improvement. The reading has a strong ‘top 14 percentile’ historic standing (86.2%) and it has improved by 9.1 points since the virus came to town.

Foreign orders and demand mirror many of the points made about total orders and demand. It has a negative reading in July and it stepped up strongly from its June value and its trend shows ongoing improvement. The foreign order series has a weaker percentile standing than for orders overall. It rises by 7.2 points from its February 2020 level.

Inventory levels fell back in July; they are below their historic median, have an extremely low percentile standing and are lower by 5.6 points from their mark in February 2020. These metrics are another way of saying that supply chain problems linger because firms cannot rebuild inventory levels. While growth in output has ensued, inventory levels have dropped from their pre-pandemic mark.

The final two items in the table are the survey responses for prices both the own prices trend and the overall or macro trend for manufacturing. Both show a steady ramping up over the last four months. Both are well above their historic mean. Both are extremely strong in their respective percentile standings. Own prices are up by 23.5 points from February 2020 while overall manufacturing prices are up by 47.5 points the largest gain in the table by far. The large increases in these price terms are an uncomfortable aspect of this survey.

Just today Christine Lagarde laid out the ECB’s new programs and used plain English to describe what the bank is doing. It foresees some above 2% inflation and then sees inflation calming to the 2% by around the midpoint of their forecast period. There are risks in this environment and markets wonder if central bankers have handicapped them properly. While the inflation indicators in the French survey may seem ominous, they coexist in the report with some evaluations of demand and orders and of the production trend itself that are quite upbeat. Whatever point estimates for inflation resolve from the French survey, it is clear that the survey participants are by and large upbeat about the future.

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