France Manufacturing and Services PMI February 2008

The February reading on the RBS/NTC Eurozone Manufacturing PMI - Purchasing Managers' Index - (a composite indicator designed to provide a single-figure summary of business conditions across the eurozone) registered 52.3 . The PMI was in line with the earlier flash reading and down from 52.8 in January, signalling a slight weakening in the rate of expansion to the second weakest level registered in the past two-and-a-half years. PMI readings among the big-four euro nations showed the widest variation for seven-and-a-half years, with continued solid growth in Germany and, to a lesser extent, France contrasting with near-stagnation in Italy and an accelerating rate of contraction in Spain. The PMI for Italy hit a two-and-a-half year low while Spain saw the sharpest rate of contraction since December 2001.

In France a dip in foreign orders and rising inflation dragged on French manufacturing activity in February the survey showed. The NTC/CDAF Index slipped to 53.8 in February from 53.9 in January, but kept above both the 50.0 mark separating growth from contraction and the series' long-term average of 53.1.



A sub-index for output fell to 56.0 in February from 56.4 in January, hitting its lowest point since November 2007. Chief NTC Economist Chris Williamson said France's manufacturers still lead Germany, Spain, and Italy in output, but warned the months ahead could present more problems.

Domestically, hiring in France picked up to its highest level since last July as companies took on staff to keep up with backlog of work. This is broadly consistent with the positive employment data we have seen coming out of France of late, and seems to suggest the contraction in umemployment will continue, at least for the time being.

Inflation concerns also rose in the February survey, with the input price index rising to 68.8 from 68.4 in January to reach its highest level since July 2007 and the output price index climbing to a 12-month high of 58.6 from 57.8. Rising prices have been the main complaint for French consumers and have driven recent falls in morale and spending.

Growth in France's services sector rebounded in February as sustained demand boosted activity from the two-year low it had hit a month earlier, and the NTC/CDAF Services Index (PMI) rose to 58.2 in February from 56.6 in January, clocking up a 56th consecutive month above the 50 floor for growth and bringing the 2008 level near to 2007's 58.6 average.



A sub-index that tracks new business growth rose to 57.2 from 56.1 in January, well off levels above 60 hit in recent years but still driving a service sector boom that has outshone Germany, Italy and Spain, the other major euro zone economies. "The rate of growth remains quite impressive," said Chris Williamson, chief economist at NTC.

Even so, France has been hit by several weaker-than-expected economic reports in recent weeks, especially with regard to consumer spending which drives a large part of the service sector. French growth slowed in the fourth quarter of 2007 in step with the global economic downturn, while January consumer spending suffered its biggest drop in over a year and February consumer morale fell to its lowest in more than 20 years.

Purchasing managers were more worried in February than in previous months, the survey showed. Its business expectations index fell to its lowest level in six months. "Because demand does seem to be more resilient in France among consumers, we've got more inflationary pressures," said NTC's Williamson. "The PMI's price indexes are still at worrying levels."