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Friday, July 25, 2014 2:19 PM


France Unemployment New High, Output Down 15th Month; Prices Drop 27th Month; Activity Up in Peripheral Europe; Outlook for Germany


The grim economic news from France keeps piling up. Today, Europe Online reports Number of Unemployed in France Hits New High.

The number of unemployed people in France has hit a new high as the country grapples with the fallout of the financial crisis and a sluggish eurozone recovery, the Labour Department reported Friday.

At the end of June, there were 3.398 million people who were registered as being without a job in the eurozone‘s second-largest economy - 0.3 per cent more than in the previous month.

Compared to June of last year, the number of jobless was up 4 per cent.

In a glimmer of positive news, the number of unemployed youth was down compared to last year: those under 25 without a job decreased by 3.1 per cent to 535,000.

France‘s 10.1-per-cent unemployment rate is nearly twice as high as in neighbouring Germany, which registers a 5.1-per-cent rate.

French Private Sector Employment Contracts 9th Month

According to the Markit Flash France PMI, French private sector output contracts again, albeit at slower pace.
The latest flash PMI data signalled that France’s private sector remained in contraction at the start of the third quarter. Output was down for the third month in succession, although the rate of decline eased to a marginal pace that was the weakest in that sequence.

Driving the headline index higher was an improvement in the performance of the French service sector. Activity there increased for the first time in three months, albeit marginally.

On the other hand, the manufacturing sector sank further into contraction, with output falling at the sharpest rate in 15 months. New business received by French private sector firms decreased for a fourth consecutive month in July. Although moderate, the rate of decline was quicker than in June. Lower new work was signalled in both the services and manufacturing sectors, with the latter reporting the sharper fall.

Anecdotal evidence suggested that client budgets were under pressure, leading to a squeeze on new orders despite further reductions in prices charged by French private sector firms. Indeed, output prices fell for a twenty - seventh successive month in July , with the rate of decline accelerating since June. A number of panellists indicated that they had been forced to pare their margins in order to stem the loss of new business , with competitive pressures generally reported to be strong. Both service providers and manufacturers reported lower charges. In contrast, firms’ input prices continued to rise at a solid pace in July, with companies in both services and manufacturing signalling increases. There were reports from the survey panel of increased costs for labour and raw materials. Employment in the French private sector decreased for the ninth month running in July. That said, the rate of decline was marginal and the weakest since Marc h. Both service providers and manufacturers cut staffing levels
France Synopsis

  • Manufacturing down at sharpest rate in 15 months
  • New business down 4th month
  • Budgets under pressure
  • Input costs rising sharply
  • Output prices down 27th month and accelerating
  • Private sector employment down 9th month
  • Service sector activity improved slightly

Activity Picks up in Peripheral Europe

Meanwhile, things improve elsewhere in Europe. The Markit European Composite report makes this headline claim: Flash PMI signals rebound in Eurozone growth but French woes persist.
Eurozone economic growth rebounded in July, according to the „flash‟ estimate of Markit‟s Purchasing Managers‟ Index. The headline PMI, covering business activity across both manufacturing and services, rose from a six - month low of 52.8 in June to 54.0 in July. The latest reading matched the near - three year high seen back in April and exceeded the averages seen in the first two quarters of the year. Many companies reported that business had picked up again in July after an unusually high number of holidays and a knock - on effect of mild winter weather had depressed activity in prior months. However, growth of new orders slowed slightly in July amid signs that expansion , especially in manufacturing, is being subdued by geopolitical concerns, in particular the escalating crisis in Ukraine.

A lack of clarity on the economic outlook, as well as ongoing pressure to cut costs and boost competitiveness, meant employment rose only marginally once again in both sectors in July.

Output prices meanwhile continued to fall, with the rate of decline accelerating slightly on June. Average selling prices have now fallen continually since April 2012, although the rate of decline remains only modest and far weaker than that seen at the height of the financial crisis. A marginal rise in manufacturing factory gate prices was offset by a drop in charge s levied for services. Some rising cost pressures were evident. Average input prices in manufacturing rose for a second successive month, growing at the steepest rate for seven months, while service sector input costs also rose, albeit to a slightly lesser extent than June. Looking at the data by country, strong national divergences persisted, with France contracting while growth accelerated elsewhere.

Firms in France reported that output fell for a third month running after the brief return to growth seen in the spring. Although French service providers saw a marginal return to growth, output in the manufacturing sector fell at the steepest rate since April 2013.

Firms in Germany, in contrast, reported the strongest increase in business activity since April, with growth picking up sharply from the lull seen in June. Service sector activity picked up especially markedly, growing at the fast est rate for over three years.

Manufacturing output growth also revived in Germany, but remained much weaker than earlier in the year. Outside of France and Germany, the rest of the region recorded the largest monthly increase in business activity since August 2007. New orders also grew at the sharpest rate for seven years. Although manufacturers outside of France and Germany saw output growth moderate slightly, the pace of expansion in services hit a seven-year high.
Party is Over

The party is over (not that there was much of one outside the stock and bond markets) once German growth slows. And while the Markit report looks one way for Germany, other indicators don't.

Outlook for Germany

I side with Steen Jakobsen, chief economist for Saxo bank on the path for Germany, and it's not a pretty one.


Europe is not prepared for a German slowdown, but it is coming. France is obviously hopeless.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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