French manufacturing sector solid in June, despite lower PMI

June data pointed to a further easing in growth of the French manufacturing sector. The headline Purchasing Managers’ Index (PMI) – a seasonally adjusted index designed to measure the performance of the manufacturing economy – fell for the second month in a row to 54.8, from 55.8 in May. That was its lowest reading since December 2009. The weaker PMI figure primarily reflected slower expansions of both output and new orders during June, alongside a sharper decline in employment.

Manufacturing production in France continued to rise in June, extending the current period of expansion to one year. Although still marked, the rate of growth eased for the third month running to the slowest since August 2009.

The moderation in output growth mirrored a similar cooling in the pace of expansion of new orders. June’s rise in incoming new work was the least marked since February, with a number of panelists commenting that clients remained hesitant in their purchasing decisions. Although growth of export orders remained strong by the survey’s historical standards, it was nevertheless the slowest in four months.

Backlogs of work also increased at a weaker pace in June. The rate of expansion of unfinished work eased to the weakest since last September, with a number of panelists commenting that shortages of stock at vendors had resulted in delays on some projects. Indeed, average lead times lengthened for a 13th successive month in June, and at a marked rate.

The quantity of inputs purchased by French manufacturers continued to rise at a solid pace in June, but their stocks of purchases still declined as many firms targeted streamlined inventories as a means of freeing-up working capital.

Input cost inflation remained substantial in June, despite easing from May’s near six-year high to the slowest in three months. The weakness of the euro against the U.S. dollar was commonly cited by panelists as a factor contributing to inflation of purchasing costs.

Firms responded to higher input prices by raising their prices charged to customers for the third consecutive month in June. The latest increase in selling prices was the sharpest since August 2008.

Employment in the French manufacturing sector decreased further in June, extending the current period of contraction to 26 months. Moreover, the rate of decline accelerated to the sharpest since January. Those panel members that recorded a drop in staffing levels commented on company reorganization and the non-replacement of leavers.

Jack Kennedy, economist at Markit and author of the France Manufacturing PMI, said: “The French manufacturing sector lost further growth momentum in June as inventory cycle effects continued to fade. Nevertheless, PMI data indicate a solid rise in output throughout Q2. Supply chain shortages remained widespread according to panelists, leading to another sharp lengthening of vendor lead times and further upward pressure on input costs.”