Operating conditions in the French manufacturing sector continued to improve during May, albeit to a lesser extent than in recent months. The headline Purchasing Managers’ Index (PMI) – a seasonally adjusted index designed to measure the performance of the manufacturing economy – recorded 55.8, down from 56.6 in April and a three-month low.
The fall in the PMI principally reflected weaker contributions from the new orders and production components, although in both cases rates of expansion remained historically strong. New orders were reported to have risen for an 11th successive month, with demand from both domestic and foreign sources improving since April. The growth rate of new export business was broadly unchanged on April’s 40-month peak, with Asia, Europe and the United States all sources of new business wins in the latest survey period.
Continued gains in new orders again contributed to growth of manufacturing production in the latest survey period. There were also reports of extra working hours and improved productivity as factors supporting the rise in output.
Capacity constraints were again in evidence, with backlogs of work rising for a 10th successive month. Although the weakest since last September, the rate at which backlogs increased remained historically marked. Manufacturers nonetheless continued to cut payroll numbers albeit to only a marginal degree and principally due to the non-replacement of leavers.
Inventories of finished goods were depleted for a nineteenth successive month. The rate of decline was the steepest since January as companies sought to meet rising sales volumes. There were also a number of reports of production delays due to supply-side shortages. Average vendor lead times again lengthened to a considerable degree in May (the steepest since July 2006), reflective of stock shortages at vendors which were exacerbated by strengthened demand for inputs. Purchasing activity amongst French manufacturers continued to rise and, although the rate of growth weakened markedly, the latest increase was strong. Companies nonetheless dipped into their existing stocks of inventories, reflective of delivery delays and rising production requirements.
Global shortages of a number of raw materials continued to drive up input costs during the latest survey period. Input price inflation accelerated to the sharpest since October 2004, with energy, metals, paper and plastics all reported to have risen in price. While manufacturers were able to partially pass on these cost increases, pricing power continued to be restricted by ongoing competitive pressures.
Jack Kennedy, economist at Markit and author of the France Manufacturing PMI, said: “The French manufacturing sector maintained solid growth momentum in May, suggesting little impact as yet from the European sovereign debt crisis. Strong growth of backlogs should support further increases in production in the near-term. However, manufacturers continued to encounter widespread stock shortages, which contributed to the sharpest inflation of input cost inflation for over five-and-a-half years.”
