French Manufacturing Downturn Deepens

August 03, 2012 /

French manufacturing sector business conditions worsened further in July.

The headline Purchasing Managers’ Index (PMI) fell from 45.2 in June to 43.4. That was its lowest reading since May 2009.

Weighing on the headline PMI figure were weaker contributions from all five of its constituent indices.
Output, new orders, employment and stocks of purchases all declined at sharper rates, while a more marked shortening of supplier delivery times was signalled.

Manufacturing production fell for a fifth consecutive month in July, with the pace of decline accelerating
to the fastest since April 2009. Output was lowered in response to a further substantial decrease in the
volume of incoming new orders. Data suggested that domestic demand remained the principal area of weakness, although export sales showed a deteriorating trend, declining at the fastest pace since November 2011.

Reduced inflows of new work contributed to greater spare capacity at French manufacturers. Backlogs of work consequently declined for the third month in succession, with the pace of contraction accelerating to the fastest since May 2009.

Manufacturers cut their staffing levels further in July, extending the current period of contraction to
five months. Moreover, the rate of job shedding quickened to the fastest since September 2009. July data signalled a steeper drop in purchasing activity.

The amount of inputs acquired by manufacturers fell at the fastest pace since May 2009. Correspondingly, stocks of purchases continued to contract, with the rate of decline quickening to the sharpest for almost three years. A lack of pressure on suppliers allowed them to deliver purchased items quicker, and as a result
lead times improved to the greatest extent since March 2009.

Purchasing costs fell on average for the second month running in July, reflecting lower prices for a range of raw materials. Accelerating to a marked pace, the rate of decline in input prices was the steepest for just under three years. Factory gate prices meanwhile were broadly unchanged in July, following slight declines in each of the previous two months.

Finally, stocks of finished goods held by French manufacturers decreased for the fourth consecutive month in July, and at the fastest pace in 2012 so far. Survey respondents commented on efforts to align inventories with current weak demand.

Jack Kennedy, Senior Economist at Markit and author of the France Manufacturing PMI, said: “The French manufacturing sector sank further into contraction at the start of the third quarter, led by a sharper fall in new orders. Weak demand both domestically and abroad continued to weigh on performance, as economic uncertainty and a deteriorating international environment hit hard.

“Steeper declines in employment and stock levels point to manufacturers going firmly into retrenchment mode. The only glimmer of light was a further drop in input prices, which eased some of the pressure on firms’ margins.”


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