The recovery in French private sector activity slowed for the second straight month in January, a key survey today showed, but growth rates remained strong and the outlook for employment brightened.
The Markit/CDAF flash composite purchasing managers' index, which combines data from both the services and manufacturing sector, slipped back to 58.1 in January from 59.2 previously.
The reading was the lowest in four months, but still comfortably ahead of the 50 mark separating growth from contraction, and above the average level for the series since it began in 1998.
"We do have to watch out because there has been a wobble in the numbers this past couple of months, but as things stand they don't represent too much of a concern, given the high levels," said Chris Williamson, economist at Markit.
The manufacturing PMI remained unchanged at 54.7 in January, slightly below a forecast from a Reuters poll of economists for a reading of 54.9, while the output index was also unchanged at 60.
The services PMI fell to 57 from 58.7 in December, again missing a consensus forecast for 59.
"December and January are very seasonal months, so the key message is don't read too much into it," said Mr Williamson.
The most important factor, he said, is that inventory-led expansion in manufacturing has spread into services, providing well-balanced growth which should help sustain the recovery in 2010.
"If we continue to see growth at this pace companies are going to have to expand capacity to meet demand so that's going to lead to an early stabilisation of the labour market," added Mr Williamson.
New export orders for the manufacturing sector hit their highest level since before the financial crisis erupted. The sub-index climbed to 55.7 from 53.7 in December, its strongest reading since December 2006.
Another sub-index showed that backlogs of work grew at the fasted pace in 22 months.
Jobs were cut at the slowest rate in 15 months, taking the composite employment index closer to stabilisation at 47.3 compared with 45.6 in December.
The French government this week raised its forecast for 2010 GDP growth to 1.4 per cent, from 0.75 per cent previously, citing an improved international environment.
But economists are worried that the recovery might falter if the employment situation deteriorates, as consumer confidence and spending could take a battering.
Jobs in the automobile sector, for example, have been protected by a government subsidy to boost car sales, but this support is now being gradually phased out.
Reuters