French business activity contracts for first time in 13 months - PMI

PARIS, (Reuters) - Activity in the French private sector slipped into contraction in February for the first time in more than a year, dragged down by weakness in the dominant

A general view shows the Eiffel tower, construction site's cranes and the Paris skyline March 17, 2014. France deployed hundreds of police in Paris on Monday to enforce the most drastic curbs on car use in 20 years as authorities sought to reduce health-endangering pollution days before town hall elections. Amid concerns of a worsening air quality after a week when unseasonally balmy weather boosted pollution, public transport was free of charge while drivers with even-numbered licence plates were told to leave their cars at home of face fines. REUTERS/Charles Platiau (FRANCE - Tags: TRANSPORT ENVIRONMENT) - RTR3HFF8

services sector which offset stronger manufacturing, a survey showed on Monday.

The preliminary composite Purchasing Managers Index (PMI) compiled by research firm Markit broke the run of expansion seen over the previous 12 months by edging down to 49.8, a touch below the 50 mark that separates contraction and expansion.

Markit’s PMI for the French services sector, which includes hotels and cafes hit by lower visitor spending following the Nov. 13 militant attacks on Paris, unexpectedly dipped into negative territory at 49.8, a two-month low.

However, the index for the smaller manufacturing sector rose to 50.3, a two-month high, confounding expectations in a Reuters poll for a small dip to 49.9. The manufacturing output sub-index fell to 49.6, though.

“This is more like France flatlining rather than sliding into another recession,” Markit chief economist Chris Williamson said, adding that a post-attacks bounce back did not seem to materialise.

“We are looking at a picture of fundamentally weak demand in France both on the consumer side and business side,” he said. New business orders received by French companies decreased for the first time in six months, with new export orders in the manufacturing sector declining for the second month running. On a brighter note, business expectations in the services sector reached a six-month high of 63.0, with panelists citing promising pipelines of work, marketing campaigns and expansion into new areas.

French companies also slashed the price they charge customers at the sharpest rate in 12 months, with firms in the services sector having to squeeze their margins in the face of rising input costs, citing strong competitive pressures.

Manufacturers, however, benefited from the lower price of raw materials such as oil and steel. Illustrating the mixed picture painted by this month’s data, the private sector as a whole increased staff levels for the second month running, a welcome development in a country where unemployment is still hovering near records above 10 percent.

But Markit’s Williamson said that the drop in outstanding business for the first time in 15 months meant the trend was unlikely to continue.

“That’s usually a sign that companies don’t have enough backlogs of orders to deal with given current workforce numbers and they will look to cut their headcount to save money,” he said.

Reporting by Michel Rose; Editing by Andrew Heavens