French industrial sector continued to grow strongly in April

The recovery in France’s manufacturing sector continued at a strong clip in April. This was highlighted by a rise in the headline Purchasing Managers’ Index (PMI) – a seasonally adjusted index designed to measure the performance of the manufacturing economy – from 56.5 to 56.6, its highest level since July 2006.

The PMI was supported by a strong and accelerated expansion of incoming new orders during April. Growth of new work was the fastest for more than 9.5 years. Anecdotal evidence highlighted stronger demand from both domestic and foreign customers. New export orders rose at the sharpest rate since December 2006.

Growth of production was also strong in April, albeit marginally slower than in the previous month. The current period of rising output now extends to 10 months. Nevertheless, backlogs of work continued to increase at a marked pace as pressures on firms’ operating capacity persisted.

Despite higher workloads, French manufacturers continued to reduce their staffing levels during April. In many cases, job losses were linked by panelists to company restructuring plans. Employment has decreased throughout the past two years.

Part of April’s rise in new orders was met through the depletion of stocks of finished goods. Post-production inventories declined for an 18th successive month. A number of panelists reported that this was in line with deliberate stock reduction policies.

The quantity of raw materials and semi-manufactured goods acquired by French manufacturers rose strongly in April. Growth of input buying was the sharpest since November 2006. Consequently, stocks of purchases rose slightly for the first time in 21 months.

High demand for inputs placed suppliers’ stocks under considerable pressure in April. As a result, average lead times lengthened for an 11th successive month, and at a marked pace.

The rate of input price inflation in the French manufacturing sector accelerated to a twenty-month high in April. Purchasing managers commented on increased prices paid for a range of raw materials including metals, plastics, chemicals, timber and fuel. There were reports indicating that supply bottlenecks had contributed to inflationary pressures.

French manufacturers attempted to offset part of the increase in their costs by raising their selling prices during April for the first time in one-and-a-half years. Although solid and the sharpest since September 2008, the rate of output price inflation remained well below that recorded for input costs.

Commenting on the Markit/CDAF France Manufacturing PMI final data, Jack Kennedy, economist at Markit, said: “April PMI data signaled a continuation of the recent strong growth in the French manufacturing sector. The inventory cycle remains an important driver of expansion alongside markedly rising export sales. Of concern to firms will be a further acceleration of input price inflation, reflecting supply-side bottlenecks and higher global raw material prices. This was reflected in a rise in output prices for the first time for one-and-a-half years in April; if this trend is sustained it could spell upward pressure on consumer price inflation in coming months.”