France manufacturing index retreats to lowest level in 10 months

The French manufacturing sector experienced a further cooling of growth momentum in July. The headline Purchasing Managers’ Index (PMI) – a seasonally adjusted index designed to measure the performance of the manufacturing economy – dropped from 54.8 to 53.9, its lowest level for 10 months. The fall in the PMI primarily reflected weaker expansions of output and new orders, alongside a faster decline in employment.

Growth of production at French manufacturers continued to be recorded during July. Although remaining marked, the rate of increase eased for the fourth month running to the slowest since August 2009.

Panellists attributed the weaker rise in output to an easing in growth of new orders. The latest expansion of incoming new work was the least marked for eleven months. Data signaled softer growth of both domestic and export sales.

Nevertheless, backlogs of work rose at an accelerated pace in July. Anecdotal evidence suggested that higher levels of outstanding business were the result of pressure on manufacturers’ operating capacity and delays in the receipt of purchased items. The latter was highlighted by another sharp deterioration in supplier lead times, which survey respondents linked to low stock levels at vendors.

The quantity of raw materials and semi-manufactured goods purchased by French manufacturers rose at a solid rate in July, albeit the slowest in five months. A number of panelists indicated strategies to secure inputs in case of future supply-chain shortages. However, the increase in purchasing activity did not prevent another slight contraction in pre-production inventories.

Input cost inflation remained strong in July, despite easing to a five-month low. Increased raw material costs and a weak euro were commonly cited by panelists as factors driving costs higher. Prices charged by French manufacturers for their finished products increased for the fourth month running in July. Although solid, the rate of charge inflation was slower than in June and remained well below that of input costs.

Employment in the French manufacturing sector declined again in July, amid reports of continued company restructuring programs. The rate of job shedding accelerated to the sharpest since September 2009.

Finally, stocks of finished goods fell for a 21st successive month in July. The pace of decline quickened since June but remained weaker than those signaled during summer 2009.

Jack Kennedy, economist at Markit and author of the France Manufacturing PMI, said: “Output growth in the French manufacturing sector slowed further in July, but still registered a decent pace of expansion to suggest the recovery remains on track. However, there appears to be no sign of the decline in employment abating, as companies continue to pursue cost-reduction strategies. Supply chain pressures were again widely reported, as low stock levels at vendors resulted in longer lead times and, in turn, contributed to rising backlogs of work at manufacturers.”