April French Sector Metrics from INSEE Show Slippage

The manufacturing climate reading for France fell to 101.1 in April from 103.5 in March and an elevated 104.5 in February. After having several months of more elevated readings, the French manufacturing gauge is reverting to weaker readings. The gauge still is not weak; its rank standing is below its historic median (below a 50-percentile rank standing). It has a moderately weak ranking value of 43.8% which is roughly 6 percentage points below its historic median on data back to 2001. However, looking at the change in this index back to January 2020 before COVID struck, the index is, on balance, lower in April 2023 than it was at that time.

Manufacturing readings Manufacturing components show that production expectations weakened in April compared to March and have weakened for two months in a row (and have net negative readings in 11 of the last 12 months). Industries report the personal likely trend for production, that is the trend applicable to the individual industries rather than to industrial production overall has weakened for three months in a row and logged a relatively sharply weaker 4.7 in April, down from 10.0 in March. The recent trend for manufacturing overall has weakened for two months in a row and is below both its January and February levels.

Orders and demand fell sharply in April; the -17 net negative reading follows a -12.7 response for March. March had improved relative to February and a two month move to stronger readings (smaller negative readings) was in progress until April. Foreign orders and demand have also weakened to -9.3 in April from -8.7 in March. That reading had improved for three-months running until April. However, the April to February readings remain clustered in a tight range. But February, March and April are significantly stronger than January.

The inventory metric shows a jump in April compared to March and gives us the highest ranking of the year at plus 21.7; it’s also the strongest reading since December.

As for prices, the ‘own likely price trend’ moved sharply lower compared to manufacturing prices in March; April was down to 12.8 from 28.1 in March. The inflation reading was stronger in January as well. Weakening price pressures have come about since these pressures peaked in December 2022. Overall, the manufacturing and industrial price level also fell to 46.8 in February from 55.9.in January; Industrial prices as a group reached peak pressure in April 2022 and pressures have been easing month-to-month since then with only one small exception in September 2022.

Standings of March readings The rank percentiles for manufacturing climate show overall industry climate below its median at a 43.8 percentile standing. Manufacturing production expectations are also below their median at a 44.9 percentile standing. The recent production trend, however, is slightly better than it's been over the previous period with 61-percentile standing, above its median. But the own-industry, or personal likely trend, shows only a 28-percentile standing, sharply below its median. Interestingly, contributors to this survey on average see their own industry performing a lot worse than for production overall. Orders and demand have a 45-percentile standing, below their historic median while foreign orders and demand have been above average, with a 61.9 percentile standing, a moderately firm reading. Inventory levels are now high in March with a 98-percentile standing; they are rarely higher. The ‘own’ expected price trend has a ranking in its 79th - nearly 80th -percentile. The manufacturing price level trend is slightly firmer near an 83-percentile standing.

Most activity readings are below their level of January 2020 before COVID struck; the exceptions are an 11.1-point change for the recent production trend and the 14.7-point change for inventory levels. Prices, of course, are much higher with the likely price trend 10.3 points higher than in January 2020 and the manufacturing sector price level higher by 27.3 points.

The table of the service sector climate gauge (below) shows ongoing sector deterioration in place; however, the three-month moving average is unchanged for three months in a row and the 12-month moving average of climate is unchanged also for three months in a row. The smoothed climate gauge is eroding very slowly.

The monthly data show the outlook in April the same as in March. And the April and March readings are slightly better than in January and February.

Observed sales readings over the last three months, however, show weaker conditions as there's been a weakening from February to March and again in April compared to the stronger January-February levels that previously were posted. Expected sales over three months ahead also reflect some weakness with expected sales going to a diffusion value of +1 in April from +2 in March. These compare to values of +7 in February and +4 in January.

Inflation is still quite an issue with sales prices over the last three months having a +17 reading for three months in a row. Meanwhile, expected-inflation (prices) is at 15 in April compared to 14 in March and has been trending lower lower from readings of 17 in February and 20 in January. Past inflation trends have a 98.8 percentile reading and expected inflation readings have a 98.4 percentile reading. Both clearly are extremely strong when viewed against past levels in the survey, one having eroded steadily and one not.

Employment conditions over three months have improved slightly with the reading of +3 in April compared to +1 in March, although both of those are lower than the readings of 4 in February and 6 in January. Expected employment, however, is weaker with the April reading falling to +5 from +12 in March, compared to January February readings in the 10 to 13 range. The ranking for employment has a 43.9 percentile standing. The expected employment result, while showing a larger drop month-to-month, still has a nearly 55-percentile standing, above its median.

These reports mostly showcase erosion, but it is slow erosion; a case could be made for calling these conditions ‘stable.’ The erosion is that slow… Except we have other reports showing economic deterioration and we know the ECB is still hiking rates.