France disappointed today with an unexpected and sharp decline in industrial output. The strength of the German report earlier this week (2.8% rise in June industrial output), coupled with the improvement in the manufacturing PMI underpinned expectations for a small increase in French output.
Instead, France reported a 1.4% decline after a 0.3% decline in May. Energy and mining took it hard, falling 5.4%, though some of this probably is weather related. Food production fell almost 3%. Most disappointing was the 0.4% decline in manufacturing output, following the 0.9% decline in May. It is not just Germany that bettered France, but Italy's industrial output has risen in May and June.
This Great Graphic, created on Bloomberg, charts French industrial production (while line) and the manufacturing PMI (yellow line). While the two track each other, the PMI, as sentiment measure, seems to be running ahead of the industrial production, a real sector measure. The decline in sentiment was larger than the decline in industrial output, during the recent turn down, and perhaps the recent improvement in the PMI is just catching-up to industrial production as opposed to being a lead indicator.
France reports its first estimate of Q2 GDP next week (August 14) and prior to today, the consensus was for a small increase. Today's report warns of the risk of another quarterly decline, which would be the third and the fourth in past five quarters.
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