France: The Olympics Come and Growth Goes?

The INSEE manufacturing survey and services survey for France both took a considerable step lower in July in the wake of some turbulent French elections and on the doorstep of France hosting the Summer Olympics. As I write this, there are reports of acts of sabotage on French railway lines intended to disrupt the Olympics. None of those actions is reflected in the data presented here today. But they may emerge in subsequent reports. The monthly drops reported here are the seventh largest for services back to 2000 and for manufacturing the ninth largest month-to-month drop.

Industry climate in France fell to 95.5 in July from 98.9 in June. Climate has a ranking at its 16.7 percentile which means it has been lower less than 17% of the time.

Manufacturing Manufacturing production expectations fell sharply to a reading of -18 in July from a reading of -11.6 in June. The standing for the reading is in its 19.8 percentile, implying that expectations have been lower less than 20% of the time.

The recent trend of production also slipped to -5.4 in July from -2 in June; survey respondents reported that their own industries personal likely trend slipped to -4.9 in July from +1.8 in June. The overall recent trend assessment for industry has a 15-percentile standing, while the personal likely trend standing has a 7.3 percentile standing; both are still extremely low readings.

Overall orders and demand slipped in July to -19.9 from-18.4 in June. That series has a standing at its 35.6 percentile. Foreign orders and demand slipped by more, dropping to -18.5 in July from a reading of -8.6 in June; that series has a 27.1 percentile standing.

Inventory levels rose in July to 8.8 from 8.4 in June and have a 44.5 percentile standing, closer to their historic median; the median occurs at a reading of 50%.

Prices show some lift in July with the own likely price trend rising to +7.0 from +3.7 in June and logging a 62.8 percentile standing, above its historic median. The manufacturing price level indicator rose to +6.9 in July from +2.9 in June, logging or below median 42-percentile standing.

The far-right hand column shows that most of these survey entries are lower than they were in January 2020 before COVID struck. Inventories are slight exception, and prices are an exception as well, showing more pressure now than there had been prior to COVID.

The Services Sector The services survey that is summarized in the chart shows a sharp drop in climate to 95.2 in July from 101 in June; the climate ranking is at its 29.6 percentile for the services sector. As is the case for manufacturing, the outlook in July slipped to -10 from -5 in June and has a 32 percentile standing. Observed sales improved in services to -1 from -4 but have a 32-percentile rank standing. Expected sales over the next three months, however, turn negative posting a -3 reading, compared to +1 in June, for 29.6 percentile standing. The services sector is seeing some price pressures as well although the observed prices of the last three months and the expected prices over the next three months both showed a slight step down in July compared to June. Both, however, still display rankings of the responses that are high. The ‘observed trend’ is at an 82.2 percentile standing, and the ‘expected trend’ has an 80.6 percentile standing. Employment expectations in the services sector, which are important since this is the main job sector for the economy, remained weak, improving by just one point in assessing conditions over the last three months, rising from -8 to -7. Expectations fell sharply to -10 in July from +1 in June; the percentile standing for the observed result is a 14.6 percentile standing while the expected job market condition has only a 9.1 percentile standing. Both are quite weak.

France’s manufacturing and service sectors both are showing weakness in July in the wake of election shocks that have occurred in France. At this point, it's not clear if we are looking at reactions to political changes or if the economic changes are already occurring on the ground. France may have been expecting a boost to activity from the Olympics, but instead these disruptions - reported as sabotage- on French railway lines, may impede the progress of the Olympic Games and could damp what could otherwise be stimulus from hosting them. France remains in a difficult spot, with economic growth not doing very well and waiting like the rest of Europe to see what the European Central Bank will do in the months ahead with monetary policy as a new set of elected representatives gets ready to set policy under President Macron.