France industrial output growth eases to 14-month low

The French manufacturing sector saw a slowdown in output growth during October. However, a sharper rise in new orders and stabilization of employment provided reassurance that the upturn remains robust. The headline Purchasing Managers’ Index (PMI) – a seasonally adjusted index designed to measure the performance of the manufacturing economy – slipped slightly to 55.2 from 56.0 in September.

The new orders component of the PMI – which has the biggest weight – signaled that growth of incoming new work was the fastest for six months in October. More than double the number of firms recorded a rise in new orders than signaled a decline, citing an improving economic climate and clients proceeding with new projects. New export orders increased at the strongest rate since June, with panelists commenting on higher sales to clients based in Europe, the United States and Asia.

Although still solid, growth of output in the French manufacturing sector eased during October. The rate of expansion slowed from the five-month high recorded in September to the weakest since August 2009.

Part of the increase in sales seen during October was met through the depletion of manufacturers’ existing stocks. Inventories of finished goods have now declined throughout the past two years. However, the latest drop was only modest and the smallest since June.

Employment in the French manufacturing sector was unchanged in October, ending a 29-month period of contraction. Correspondingly, backlogs of work increased at a slower pace, with the latest rise the weakest for thirteen months.

Stocks of purchases held by French manufacturers fell for a sixth successive month in October. Furthermore, the pace of decline was the fastest since February. This partly reflected a weaker rise in purchasing activity, which grew at the slowest rate for three months.

Average input costs increased steeply in October, with the rate of inflation accelerating to the sharpest in four months. Higher raw material prices were widely commented on by panelists, which in turn were often linked to bottlenecks at suppliers. Vendor lead times lengthened for a 17th consecutive month, and at a substantial rate.

Prices charged by French manufacturers for their finished goods continued to increase in October. The latest rise was the strongest since June, although it remained well below that signaled for input costs. Anecdotal evidence suggested that competitive pressures continued to constrain manufacturers’ pricing power.

Jack Kennedy, economist at Markit and author of the France Manufacturing PMI, said: “PMI data signal a further robust expansion of the French manufacturing sector in October. Although output growth eased to a 14-month low, a stronger increase in the forward-looking new orders component provides optimism that the slowdown may only be temporary. Furthermore, a stabilization of employment, following a twenty-nine month period of decline, suggests that firms are becoming more confident in the sustainability of the upturn.”