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Economy in Brief

France Shows Balanced Sector Recovery
by Robert Brusca  October 27, 2021

The Insee surveys show a relatively balanced recovery response as the two service and manufacturing sectors have rebounded in step since the virus struck (note this is a relative statement as the two sectors plot on different axes). Industry has improved to generate a climate percentile standing ranking of 78.3%. The service sector has an even stronger 99.6 percentile ranking. The chart plots production expectations for manufacturing and that has a standing at its 95.5 percentile. The French survey show a much more robust rebound in the service sector than most international surveys of other countries service sectors and generally performs better than Germany’s or the EMU-wide service sector measures.

All manufacturing readings lie above their respective means (calculated) since 2001 except for inventories… and all are above their respective medians except inventories and foreign orders and demand (that is indicated by a rank standing below the 50% mark). In fact, of the nine-manufacturing metrics, three of them rank in their 90th percentile decile, two rank in their 80th percentile decile, with one each in the 70th and 60th deciles. And then there are the two weak readings for foreign orders and for inventories.

Despite the upbeat standing and ranking of the manufacturing industry metrics there is a clear recent weakening in train. Since July most of the activity metrics are weaker the exception is production expectations that is up slightly from its July level but did fall back month-to-month in October. Inventories are slightly less weak since July and prices are stronger, suggesting that prices are not boosted by rising domestic demand conditions.

The service sector shows a strong climate reading and solid momentum on changes since July as well as a sharp four-point rise in October for the climate gauge propels the index higher. The service sector offers the ten gauges in the table seven of them with a 90th percentile decile standing, two with 80th percentile decile standings and one with a below mean/below median 40th percentile standing. There is a lot of strength and momentum in the service sector but also some surprises.

The outlook is exceptionally strong with the highest reading on this timeline- that fits well with the production expectations reading in manufacturing. Both observed and expected sales have premium, 90th percentile standings. The sales prices for the past three months Vs the next three months show high rankings in their 80th to 90th percentiles but expected pressures are lower than they were in July and August. This is a departure from the price dynamics identified in manufacturing where pressures have simply been building. Employment gains have moved sideways or weakened since July and stand barely above their mean and below their median. But expectations for employment over the next three months are strong with the highest expectations reading ever on this timeline built mostly on the jump made in October.

Since Covid struck... Both surveys show broad-based gains since Covid struck. The manufacturing series shows only a net weaker inventory reading and this we know is from ongoing supply chain disruptions firms simply have not been able to maintain let alone rebuild inventories. For services, the 12-month average of the climate reading falls short -that tells us that the 12-monht average is not back to where it was, but the 3-month average is 4.7 points above where it was when Covid stuck. Then there is the net weaker employment gain for on jobs in services over the last 3-months. But the look ahead reading is up strongly and the diffusion reading itself is a record on this timeline. So, there has been a weakening in job growth as the virus kicked up but looking ahead acceleration is expected.

On balance the two French sectors show a good sense of rebound and repair in the wake of Covid. There may be some questions about the momentum in manufacturing, but service sector momentum looks very good and that is the sector most likely to be untracked buy a new Covid issue. So far that is not happening as both the French infection and death rate curves are on the decline and showing low values. To sum up: so far so good.

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