The French manufacturing production index dropped by -1.4% in January after a revised increase of +1.3% in December (Technically the index was rebased from 2005 to 2010. This change + change in seasonal coefficients explain the change in December from +0.1% to +1.3%. Nevertheless the quarterly change was almost the same. It was -9.8% at annual rate in the 2005 base and was -9.9% in 2010 base).   

In January, the yearly change of the manufacturing production index was -4.6% (last 3 months compared to the same 3 months last year) and the 3 month change was -8.3 % (last 3 months compared to the previous 3 months at annual rate)

On the first chart we see that the index is on a downward trend since the beginning of 2011 except during summer 2012. That’s impressive.

Carry over growth for the 1st quarter is -3.2%. Keeping the same index level in February and March than in January would imply a 3.2 % drop in Q1. This has to be compared to the -9.9% change seen in Q4 2012.

Nevertheless, on the second chart I’ve put the New Orders to Inventories ratio taking from the PMI/Markit survey. This is quit consistent with 3 month change of the manufacturing index.

As the ratio level is well below one, this means that new orders momentum is too low compared to inventories. Companies will take from these inventories to satisfy their demand. This will lead to a new drop in production and with what we know for the moment this will probably lead to a negative Q1 GDP number