France manufacturing PMI posts best readng in almost 3 years

The French manufacturing sector continued its rebound from the post-financial crisis slump in October. Month-on-month growth of output accelerated to the fastest since September 2000, supported by a robust increase in new orders. The headline Purchasing Managers’ Index (PMI) – a seasonally adjusted index designed to measure the performance of the manufacturing economy – recorded 55.6, up from 53.0, its highest level in almost three years.

French manufacturers reported a rise in production for the fourth consecutive month in October. Growth was centered on the intermediate and consumer goods sectors. More than one-third of panelists registered higher output, which they widely attributed to increased levels of incoming new orders.

The pace of expansion of new work reached a near three-year high in October. Survey respondents commented on stronger demand conditions and the roll-out of new products as factors supporting increased sales. The domestic market provided the main impetus to growth, as export orders rose at a slower (albeit still solid) rate.

Robust demand contributed to a further marked decline in stocks of finished goods during October. Leaner inventories were also attributed to cost-cutting strategies. Stocks fell at the sharpest rate in three months.

October’s strong increase in new orders resulted in pressure on firms’ operating capacity. This was highlighted by backlogs of work rising at the sharpest rate since December 2007.

Correspondingly, staffing levels decreased at a slower pace during the latest survey period. The rate of decline in employment was the weakest in 14 months.

Growth of purchasing activity accelerated to the strongest for just under three years in October, as firms responded to increased production requirements. The rise was not sufficient to prevent another fall in pre-production inventories, but the rate of contraction of stocks eased to the slowest in a year.

Robust demand for raw materials placed suppliers under pressure, with anecdotal evidence pointing to low stock levels at many vendors. Consequently, average lead times lengthened at the sharpest rate since September 2006. Purchasing costs rose for the first time in a year in October. Panel members noted higher prices paid for steel, oil and plastics.

In contrast, output charges continued to fall, with the latest drop the fastest since July. Competitive pressures were widely cited as a factor weighing on factory gate prices.

Commenting on the Markit/CDAF France Manufacturing PMI final data, Jack Kennedy, economist at Markit, said: “The strong recovery in French manufacturing continued in October, with output rising at the fastest pace for nine years. While some of the current strength reflects a rebound from the extreme weakness seen in the aftermath of the financial crisis, it nevertheless offers further evidence that the France is towards the front of the pack among developed economies in emerging from the downturn. Domestic demand remains the key driver of growth as confidence continues to recover.”