French Private Sector Activity At Near 3-Year High, Consumer Spending Grows

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France's private sector activity reached its highest level in nearly three years, while consumer spending grew at its fastest monthly rate in 21 months, official data showed on Friday.

The Markit / CDAF Flash Composite Output Index stood at 58.4 in October, up from 54.8 in the previous month. A reading above 50 indicates expansion, while one below 50 suggests contraction. This marks the highest level in the index in 35 months and also marks the third consecutive month in which the private sector has expanded.

Higher output was seen across the manufacturing and service sectors as the economic recovery gathers momentum. The Manufacturing Purchasing Managers' Index stood at 55.3 in October compared to 53.2 in September, with the index reaching its highest level in 35 months. The manufacturing output index was at a 41-month high of 59.6 in October, up from 57.6 in the previous month, while the services activity index rose to 57.8 from 53.2, which marks the highest reading in the index in 20 months.

The rise in output was fuelled by an increasing inflow of new orders, with new business growing at its fastest rate in nearly two years. Also, outstanding businesses at French firms rose for the second straight month with signs of capacity pressures emerging, especially in the manufacturing sector.

"Output was sustained through higher gains in new business, particularly from the domestic market, although in part this was driven by continued discounting amid strong competitive pressures," said Paul Smith, Senior Economist at Markit.

Despite the upturn in activity, employment levels in the French private sector continued to decline as French firms were still focused on cost cutting and restructuring. Input prices fell for the twelfth straight month, albeit at a slower pace. On the other hand, output prices were slashed again mainly as a result of increased competition.

"While employment continues to fall, emerging signs of capacity pressures and optimism in the strength of the upturn raise hopes that job losses will dwindle in the coming months," Smith said.

In October, business expectations remained steady at September's 68-month peak, with the optimism attributed to recent signs of recovery and confidence in the strength of the emerging upturn.

Meanwhile, consumer spending in France rose 2.3% month-on-month in September after falling 1% in August, data released by the statistical office INSEE showed earlier in the day. This marks the fastest monthly rate of growth in consumer spending since December 2007. Economists had forecast a more modest increase of 0.5%.

Spending on manufactured goods totaled EUR 22 trillion in September, up from EUR 21.52 trillion in the previous month. Of this, spending on automobiles recorded the biggest increase, up 10.2% from the previous month. Further, spending on other manufactured goods, textile-leather goods and household durables grew 0.3%, 2.9% and 0.2%, respectively.

On a quarterly basis, spending recorded a slight decrease of 0.2% in the third quarter compared to the previous quarter.

"Data confirm that the evolution of total spending has been largely dependent on car sales and government incentive scheme since the beginning of the year," BNP Paribas economist Frédérique Cerisier said. "The underlying trend for total private consumption remains weak." Despite the continuous improvement of the economic climate, the economist said, household consumption may not accelerate in the near term.

France's private sector activity reached its highest level in nearly three years, while consumer spending grew at its fastest monthly rate in 21 months, official data showed on Friday. (Market News Provided by RTTNews)