France: Business confidence indicators confirm weak PMIs - ING

French business confidence was stable in most sectors in May, but sentiment in the service sector declined sharply which tipped overall confidence into negative territory, explains Julien Manceaux, Senior Economist at ING.

Key Quotes

“The Purchasing Managers surveys in May showed a sharp slow down in service sector activity, with the index reaching 54.3, its lowest level since January 2017. The manufacturing sector failed to compensate for this in the composite index. These figures were confirmed by the main business confidence indicators which showed a stabilisation in retail, building and manufacturing activity (which is still supported by strong order books), but a strong drop in the service sector.”

“However, outside the service sector, data was not as dismal as it looked.”

“Unemployment temporarily increased in the first quarter

• Unemployment in metropolitan France suffered a temporary increase in the first quarter that was bigger than expected, from 8.9% to 9.2%. The increase in the unemployed population would have been 80,000 following the ILO measure, while Pole Emploi measured a 52,000 rise in the first quarter. The only way to reconcile both measures is to take the total unemployment decline in the nine months to March (around -40,000). Both measures then show that the trend is positive and that unemployment is on a downward trend, although it is not a quick one.”
• The improvement in employment growth looks too slow, at just 1% in 2017 after 0.7% in 2016. Moreover, unemployment among the youth remains very elevated at 22% (against 25% at its peak in 2016), which fuelled the debate this week around new measures for France’s 1200 suburban areas (home to 5.5 million people) where youth unemployment was 45% at the end of 2017. There is no doubt that more reforms are needed on that front to accelerate employment growth.”