The French manufacturing sector posted further marked growth in March, rounding off a strong performance throughout the first quarter of the year. The headline Purchasing Managers’ Index (PMI) – a seasonally adjusted index designed to measure the performance of the manufacturing economy – posted 56.5, up from 54.9 in February, its highest level for 40 months.
A key factor driving the PMI higher in March was a sharp and accelerated increase in new order volumes. The latest rise in new work was the ninth in successive months and the most marked since July 2006. Growth of export sales quickened to a 39-month high.
Part of the increase in new orders was met through the depletion of existing stocks of finished goods. Post-production inventories declined for a 17th successive month, although the rate of contraction remained slower than those seen throughout 2009.
There was further evidence of capacity pressures at French manufacturers during March, as backlogs of work increased markedly. The latest rise in outstanding business was the eighth in consecutive months. Nevertheless, firms continued to cut employment in line with ongoing company restructuring policies. Staffing levels decreased for the 23rd month running, although the pace of job losses remained modest.
The quantity of inputs bought by French manufacturers increased again in March, reflecting higher production requirements. Growth of purchasing activity was the second-sharpest in the past 40 months. That was insufficient, however, to prevent another fall in stocks of purchases.
Anecdotal evidence suggested that supply-side bottlenecks were widespread during March. Highlighting this, vendor lead times increased for a 10th straight month, and at a substantial rate.
Shortages of inputs afforded suppliers greater scope to raise their prices. Consequently, purchasing costs increased at the fastest pace since August 2008. Panelists commented on higher prices paid for a range of raw materials.
In contrast, output prices in the French manufacturing sector continued to decline during the latest survey period, albeit at only a moderate rate. Survey respondents frequently commented that competitive pressures had dampened their pricing power.
Commenting on the Markit/CDAF France Manufacturing PMI final data, Jack Kennedy, economist at Markit, said: “The recovery in France’s manufacturing sector continued in March, buoyed by the strongest rise in new orders for over 3.5 years. Improved demand conditions both domestically and abroad were reported by panelists. However, the rebound has been accompanied by a rise in cost inflationary pressures, linked to bottlenecks at suppliers following widespread destocking at the height of the downturn. Manufacturers have largely had to absorb these higher costs, as competitive pressures have prevented them from raising their own selling prices.”