France manufacturing PMI reaches 10-year high

French manufacturers saw a steep increase in incoming new work during November. Consequently, output was raised substantially while both purchasing activity and employment were expanded. The headline Purchasing Managers’ Index (PMI) – a seasonally adjusted index designed to measure the performance of the manufacturing economy – jumped from 55.2 in October to 57.9, its highest level for more than 10 years.

Growth of new orders in November was the most marked since August 2000. The strongest sales trend was reported by primarily business-facing firms; investment and intermediate goods producers signaled sharper rises in new orders than consumer goods manufacturers. There were a number of reports that clients were looking to build stocks, suggesting growing confidence in the sustainability of the upturn. While data signaled that domestic demand was the main driver of expansion, growth of new export orders accelerated to the strongest for six months.

Many panelists indicated that November’s rise in new orders had exceeded their expectations, leading to pressure on existing stocks of finished goods. The latest drop in post-production inventories was the steepest in over a year.

In line with higher production requirements, French manufacturers increased their staffing levels in November. It was the first rise in employment in the sector for over 2.5 years, and at the fastest rate since July 2007.

Backlogs of work in the French manufacturing sector increased again in November, with the latest rise the strongest since April. Panelists suggested that marked growth of new orders had placed operating capacity under pressure. There were also reports of difficulties in securing certain inputs. Supply chain tensions were highlighted by a further lengthening of vendor delivery times in November. The latest deterioration in lead times was the eighteenth in consecutive months and the sharpest since July.

Suppliers’ stocks came under pressure amid a marked increase in purchasing activity by French manufacturers during November. Growth of input buying was the fastest since April, reflecting the strong trends in output and new orders. Manufacturers’ inventories of purchases nevertheless decreased slightly.

Average input costs in the French manufacturing sector rose at the sharpest rate for five months during November. Panelists frequently commented on higher prices paid for a range of raw materials, in particular food items. In order to defend margins, manufacturers raised their output prices strongly and at the fastest pace since August 2008.

Jack Kennedy, economist at Markit and author of the France Manufacturing PMI, said: “A flood of new orders boosted the French manufacturing sector in November, primarily driven by strong business-to-business sales. With capacity at a number of firms reported to be under pressure, finished goods stocks were run down while output prices were raised at the sharpest rate for over two years. Manufacturing is certainly flying at the moment, boosting hopes that Q4 GDP growth will beat that in Q3 as the French government expects.”