The French economy picked up significant momentum in February if today's flash PMI results are anything to go by. The key composite output index provisionally weighed in at 56.2, a 2.1 point jump from its final January level, comfortably above market expectations and its strongest reading in some sixty-nine months.
However, the surprisingly good headline data masked widely divergent developments in the two main sectors. On the positive side, the services flash PMI shot up some 2.6 points to 56.7, its best mark in five and a half years. By contrast, its manufacturing counterpart fell 1.3 points to just 52.3, a 3-month low.
Promisingly, new business saw further growth in both categories and the aggregate measure posted a 69-month peak. Capacity pressures were also apparent with backlogs rising quite sharply, notably in services. As a result, overall headcount increased for a fourth consecutive month, again led by services where net additions were the largest in five and a half years. Against this backdrop, overall confidence in future output registered its best outturn in four and a half years.
Nonetheless, the pick-up in business activity comes from quite a low base and this was reflected in prices. Thus, while input cost inflation touched a 68-month high, aggregate selling prices still fell for a remarkable fifty-eighth consecutive month.
Today's report is a mixed bag but overall should be seen positively for the French economic recovery. Rising new orders and employment bode well and business confidence is clearly on the up. Nonetheless, the apparent upturn in the real economy must be sustained if corporate margins are to feel some relief and that will probably need a stronger manufacturing sector.