Recovery of French manufacturing sector continued in January

Business conditions in the French manufacturing sector improved for a sixth consecutive month in January. The headline Purchasing Managers’ Index (PMI) – a seasonally adjusted index designed to measure the performance of the manufacturing economy – posted 55.4, up from 54.7 in December.

The rise in the PMI reflected faster expansions of both output and new orders during the latest survey period, while supplier delivery times lengthened at a sharper rate.

Manufacturing production increased for the seventh month running in January. Furthermore, the rate of growth accelerated to the strongest for almost 9.5 years, with over one-third of panelists reporting a rise.

Higher output was underpinned by a further expansion of incoming new orders during January. The latest increase in new work was the sharpest since November 2006, and was attributed by survey respondents to improved demand conditions and new product launches. Data indicated stronger demand from both domestic and foreign clients, with new export orders increasing at the fastest pace for just over three years.

Correspondingly, French manufacturers signaled a marked rise in backlogs of work during January. Outstanding business increased for a sixth straight month, and at the sharpest rate since November 2006.

Part of January’s increase in sales was met through the depletion of stocks of finished goods. Post-production inventories declined for a fifteenth successive month, and at the fastest rate since last October.

Stocks of purchases also fell in January, reflecting higher production requirements. The latest decline occurred despite buying activity increasing at the fastest pace for over three years. Strong demand for inputs resulted in another lengthening of supplier lead times.

Input cost inflation accelerated to a 16-month high in January, amid reports from panelists of higher prices paid for raw materials such as metals, food and packaging. Competitive pressures meant that firms were largely unable to pass on higher costs to customers. Instead, output prices declined for a 15th successive month, although the latest fall was the slowest since November 2008.

Despite the recent rebound in activity levels, French manufacturers continued to reduce payroll numbers in January. A number of firms linked lower employment to cost-cutting strategies. However, the pace of decline remained much weaker than the steep falls seen throughout much of 2009.

Commenting on the Markit/CDAF France Manufacturing PMI final data, Jack Kennedy, economist at Markit, said: “The recovery in the French manufacturing sector remained intact at the start of 2010. Output rose at the strongest rate for almost 9.5 years in January, as the rebound from the record contraction seen in early 2009 continued. While domestic demand remained the primary driver of growth, there was also evidence of strengthening export sales, indicating a broad-based expansion. However, staffing levels continued to be cut as manufacturers targeted cost savings and productivity gains at a time when input price inflation reached a 16-month high.”