French Business Confidence Improves Slightly: Synthetic vs Traditional Indexes

Business leaders in France became slightly more optimistic in March. The composite business climate indicator, computed by INSEE (Institut Nationale des Statistisque et Etudes Economique) rose 0.93% to 109 from 108 in February and was 3.81% above March, 2006.

The INSEE indicator is a synthetic index constructed to have an average of 100 and a standard deviation of 10. As such values of the index above 100 indicate above average sentiment while those below 100 indicate below average sentiment. The first chart shows that sentiment among French business leaders reached the 100 mark in mid 2005 and continued to rise reaching a peak of 109 in April, 2006. Since then sentiment has been up and down within a narrow range and has once again reached the 109 level.

Given their special characteristics, the absolute levels of synthetic indexes should not be compared with the absolute values of traditional indexes. In the case of the latter, where 100 represents the value of the index in a base year, values above or below 100 merely indicate that sentiment is above or below the level of the base year.

For comparison among European business confidence indicators, the best source is the EUROSTAT data base. Where indexes like those of INSEE for all the countries in the European Community are found. The INSEE measure is different from the EUROSTAT measure, but is close, as can be seen in the second chart. The EUROSTAT data for the four major European Economies, Germany, France, Italy and the UK, are shown in the third chart. All are currently above their long term averages.Data for the EC countries are published shortly after the INSEE data for France. As of now, February data are the latest.