Franco-German PMI/INSEE: Substantial further erosion in new orders indices, despite improvement in service sector PMIs
 
Bottom line
 
In general, the message from today's PMI and INSEE business confidence data is that the now widely expected recession in the euro area manufacturing sector is likely to be substantial, even though confidence in the service sector has recovered. In our view, the ongoing deterioration in manufacturing sentiment is more significant (also in the context where the Markit 'flash' China PMI also fell sharply to 48.0 in November from 51.0 in October). This is because the manufacturing sector tends to lead the service sector, particularly since activity has been sustained so far by the export sector. We are particularly struck in today's report by how much further the German manufacturing orders PMI has declined -- it dropped to 42.6 from 45.1 in the final October reading, the weakest since May 2009.
 
 
Germany: Still weaker new orders in manufacturing, even though composite readings improved
 
The 'flash' November manufacturing PMI came in close to our expectation at 47.9 (BarCap: 48.0/consensus 48.5), down from 49.1 in October, while the services 'flash' PMI activity 'headline' index was at 51.4, up from 50.6. Our 'composite' services 'flash' PMI was at 51.4, up from 50.6 in the October 'final' report, and the strongest since July.
 
The composite activity index (comprising manufacturing and services balances) was steady at 50.3 (compared with the 'final' Oct. reading), while the new orders composite improved from 46.5 to 47.3 and the employment composite improved to 53.8 from 53.2. The output prices composite improved to 52.8 from 51.9, while the input prices composite improved from 53.4 to 54.0.
 
That said, we focus on the new orders reading, which slumped to a new low of 42.6 in the 'flash' November PMI, down from 45.1 in October, the weakest since May 2009. Related to this, the export orders reading slumped to 41.3 from 42.2 in October. As well, stocks of finished goods rose to 51.8 from 50.4 (suggesting that manufacturers may not have cut production sufficiently given the slump in orders).
 

French round-up: Mixed signals
 
Taking both the Markit PMI and INSEE data published today, three of the four key series recorded a deterioration, the exception being a surprise improvement in the 'flash' services PMI.
 
Combining the manufacturing and service sector data in the "composite" PMIs, the output index improved to 48.7 from 45.6 (October final), while the new orders composite rose to 46.8 from 45.0 and the employment composite improved to 54.5 from 51.9.
 
Concerning inflation, the PMI diffusion balances showed a surprising increase. Manufacturing output prices to 53.9 (the highest since August 2011) from 51.1 (October final), and manufacturing input prices climbed to 50.6 from 47.7. Service companies' output prices increased to 51.2 from 50.0 and input prices rose to 56.3 from 53.8.
 
INSEE also released other business sector survey data, which showed decreases on the previous month: wholesale (-4 points), industry (-2 points), retail trade (-2 points), and the building sector (-1 points).
 
 
French manufacturing: Confidence declines further
 
The French 'flash' November manufacturing PMI fell to 47.6 from 48.5 in the October final, to the lowest since June 2009. The weakness was broad based, with the new orders balance worsening to 44.0 from 44.6 (October final), the worst since April, 2009 (export new orders showed a similar decrease). Meanwhile, the diffusion balance for finished goods inventories fell slightly to 49.1 from 49.6.
 
Meanwhile, the November INSEE industrial synthetic climate index lost 2 points to 95 and is now, for the third consecutive month, below its long-term average (100). This series tends to be somewhat smoother and more lagging than the PMI manufacturing index.  INSEE's survey found that activity in previous months had improved (November: 3; October: 0) but was still below its long-term average (5). Also stocks of finished goods increased to 17 in November from 14 in October and remain above their long-term average (13). Furthermore, total foreign orders books (level) decreased to -26 in November from -19 in October (long-term average: -12) but global order books remained stable at -19 in November, slightly below their long-term average (-17).  
 
 
French services: Mixed signals
 
On a more positive note, the 'headline' services PMI (which relates to activity versus the previous month) improved sharply to 49.3 from 46.0. Our calculation of the services composite (including the indices for outstanding business, new business and employment as well as the headline activity index) showed a somewhat smaller, but nonetheless noteworthy, improvement, from 47.2 (October final) to 49.8.
 
Meanwhile the INSEE confidence indicator fell by 2 points to 92, from 94 in October and stands, for the third consecutive month, below its long-term average (100). Business leaders consider that the general outlook has deteriorated by 2 points compared with October (November: -14; October: -12) and continues to stand below its long-term average (-5). However, past activity improved in the recent period (November: -2; October: -4; long-term average: +4). Looking ahead, business leaders think activity should decrease in the coming months (November: -2; October: +2; long-term average: +4).
 
Regarding the jobs market, business leaders feel the level of job creation, excluding temporary employment, has risen slightly over the past few months (November: 7; October: 3; long-term average: 4). Nevertheless, they expect employment growth to slow in the coming months (November: 1; October: 6; long-term average: 3).
 


source: BarCap