Two French Authorities Point To Improving Business Sentiment

The Bank of France and France's INSEE (Institute National des Statistiques et Etudes Economiques) publish measures of business sentiment in industry. The Bank of France measure canvasses about 6000 managers on various business conditions. The responses are based on the difference between those who view conditions optimistically and those who views them pessimistically. The resulting balances of opinion are expressed in terms of their long term average which is set to 100. Thus the January value of 103.89, released today, indicates that business sentiment is about 4% above its long term average. It has improved, if somewhat erratically, since December 2008 when the indicator was 67.40 or about 33% below the long term average but it is still below 109.69, the peak reached in October 2007, before the current downturn started.

INSEE's measure, which was released last week, is based on the responses of 4000 companies engaged in manufacturing, food processing industries and petroleum refining. It also collects balances of opinion on various business conditions, but expresses the data such that its average is 100 with a standard deviation of 10. The INSEE measure at 92 for January indicates that sentiment is below average--8%--but it has been improving since March 2009 when it was 69 or 31%, or more than three standard deviations, below average.

The two measures are shown in the attached chart. As can be seen, there is a high degree of correlation between the two. Although both show that much of the loss in sentiment suffered during the current downturn has been recovered both show that business sentiment is well below the peaks reached in 2000.