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French Recovery Fades as Manufacturing, Services Contract

Shrinking Manufacturing
An employee removes excess felt from berets inside the factory of 174-year-old beret-maker Laulhere, owned by French military-garment maker Cargo-Promodis, in Orolon-Sainte-Marie, France. Photographer: Balint Porneczi/Bloomberg

French manufacturing and services unexpectedly shrank this month, highlighting President Francois Hollande’s struggle to revive the euro area’s second-largest economy.

A Purchasing Managers Index of factory activity dropped to 49.3 from 51.2 in April, while a services gauge fell to 49.2 from 50.4, Markit Economics said today in London. Economists had forecast readings above 50, the level that divides expansion from contraction.

Hollande is grappling with an economy that stagnated in the first quarter as both investment and consumer spending fell. After two years in office, his government has yet to achieve two consecutive quarters of expansion, a performance that has driven jobless claims to an all-time high of 3.3 million and his own popularity to a record low.

“France’s stuttering economic performance continued in May,” said Jack Kennedy, a senior economist at Markit. “With new orders and employment both falling at sharper rates in the latest month, the malaise looks set to persist.”

The euro slid to an intraday low of $1.3656 on the report, from about $1.3675. It was at $1.3666 at 9:13 p.m. Frankfurt time.

A composite gauge of both manufacturing and services declined to 49.3 in May from 50.6 in April, Markit said. A measure of new business also dropped and employment fell at the fastest pace in three months. Markit said a number of companies indicated that payrolls were cut “in line with falling business activity.”

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