French INSEE Survey: Mixed Picture; Manufacturing Improves While Services Remain Dead Flat

Manufacturing and Services The INSEE surveys for France in September rose for manufacturing while it remained dead flat for services. The manufacturing survey rebounded to 98.6 in September but was still below its July value of 100.7. The manufacturing rebound in September is limited; activity remains weak, historically at a percentile standing of 31.3% in the bottom third of historic observations.

Manufacturing Climate and production- Manufacturing production expectations in September remained negative but improved to -6.2 from -9.0 in August. The recent production trend worsened, falling to -6.3 from -4.0 in August. However, respondents referring to their own industry reflected a ‘personal likely trend’ that's much stronger at 14.1 compared to 2.5 in August. Survey respondents are downbeat on manufacturing overall, but upbeat on their individual sectors. That's a divergence worth watching. And it's also a rather significant divergence because the standing for the recent industry trend is at its lower 15th percentile whereas the standing for the ‘personal likely trend’ is at its 77.7 percentile. There's an extreme chasm between what respondents think is going to happen to industry overall compared to their optimism on their own individual surveys. Is it optimism or denial? Those two readings on ‘likely trends’ compare to an overall manufacturing production expectation that has a 39.7 percentile standing. That standing is below its 50th percentile, below its median, and weak.

Orders and demand- Orders and demand are little-changed month-to-month in manufacturing. The September value is -21.4 compared to -21.2 in August. For foreign orders & demand, there is slight improvement to a reading of -13.9 in September from -15.1 in August. The percentile standing for overall orders & demand is a 32.8 percentile standing and that compares to a 44th percentile standing for foreign orders & demand; both are below median values, and both are weak.

Inventories- The response for inventory levels declined slightly in September to 14.8 from 17.8 in August, but these are strong values with 87-percentile standing for the September value.

Prices- Prices show increased pressure month-to-month with the ‘own likely price trend’ moving up to 5.2 in September from 2.2 in August compared to the manufacturing overall price trend that moves up to 8.9 from 5.0 in August. The ‘own likely price trend’ in September is still below its July value, whereas the manufacturing price level in September is assessed at twice its July level. The standing for the ‘own likely price trend’ is a 55.9 percentile standing, compared to a below-median 46.2 percentile standing for the manufacturing price level. While the assessment of manufacturing prices is below the assessment for the ‘own unlikely price trend’ the two standings aren't all that far apart.

Services Climate and outlook- The survey for services has an unchanged climate indicator for 3 months in a row, and even the three-month moving average is unchanged for 3 months in a row. Conditions in the services sector appear to be rather static. The headline climate indicator has a 49-percentile standing which leaves it just a tie below its historic median. The outlook for services is at -5 for the last three months running and that has a 49.8 percentile standing, nearly on top of its historic median. The observed trend for sales is -2 in September and -2 in August; however, that has a weak, 33.2 percentile standing.

Expected and observed sales- Expected sales over the next three months had ticked up from +1 in July to +2 in August to a +3 reading in September, posting a 52.2 percentile standing for September.

Prices- Observed sales prices over the last three months show some weaker conditions; the level in September and August is unchanged at +8, but these are down from July's reading of +12. The September price assessment, however, is strong with a 92.9 percentile standing. Expected prices over the next three months ramp up from a value of +6 in July to +7 in August to +9 in September; the September value has a 94.5 percentile standing. French respondents clearly are observing and expecting inflation to continue.

Employment- For employment, the observed trend over the last three months is little changed between values of -3 and -2 with the September value of -3 logging at a weak, 26.9 percentile standing. The expected employment trend over the next three months has improved from zero in August to +3 in September, but that's below the level of +6 for July although it posts a 45.5 percentile standing which is modestly below its historic median (a median that occurs at a 50th percentile standing).

Summing up The surveys for services and manufacturing do not score well in terms of creating a strong outlook or expectation for sales. On the services side, conditions continue to float around for the most part near neutral readings with generally weaker readings on the employment side. Despite this, the price metrics in the services sector remained elevated and continued to demonstrate upward momentum. The manufacturing climate is significantly below its neutral reading, but the production trend is quite weak and there is this odd development in which firms appear to be very downbeat on manufacturing overall yet upbeat on their individual industries. Overall orders & demand and foreign orders & demand are below normal to significantly below normal. In this environment, inventories have built up. Price pressures in the manufacturing sector are more mixed than for services where they are clearly elevated and rising. Manufacturing survey respondents indicate slightly stronger own price trends than industry price trends. Overall, these two surveys paint an uneven picture of the French economy, where inflation pressures continue to percolate as the economy remains at substandard operating levels and faces further challenges ahead.