6th October 2021

Key Findings:

French construction sector remains mired in contraction
Intense cost pressures continue amid supply shortages and delivery delays
Employment growth just shy of two-year high as confidence improves

Latest survey data pointed to a further contraction in French construction activity in September, stretching the current period of decline to four months. The reduction came amid reports of intense shortages of construction materials, which were a key factor behind delays in average lead times. Weaker demand was also evident, as new orders fell, but construction firms hired extra staff at the fastest pace in almost two years.

The headline France Construction Purchasing Managers’ Index® (PMI®) — which is based on a single question asking respondents to report on the actual change in their total construction activity compared to one month ago — rose to 48.9 in September, from 44.9 in August. With another sub-50.0 reading, the headline index signalled a further reduction in construction activity across France and the fourth in successive months. That said, the decline was less severe than in August and the joint-weakest over the current downturn period.

The decrease in construction work was primarily driven by civil engineering, as commercial building activity fell only marginally. Meanwhile, the final sub-group of construction activity monitored — residential — posted a modest expansion for the first time since May.

French construction firms faced substantial supply-side impediments during September, with widespread reports of shortages for key materials. This put pressure on supplier capacities, leading to longer lead times. In fact, the deterioration in vendor performance during September was the second-sharpest recorded since data collection began in 2000, surpassed only by that seen in April last year.

Low levels of material supply exerted severe upward pressure on prices in September. Input costs increased at one of the quickest rates seen in the survey history, although the slowest in five months. According to surveyed firms, steel, wood and copper-based items were particularly affected.

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Nevertheless, French constructors increased buying activity at a solid pace, a marked contrast from the decline seen previously. Some firms raised purchasing activity in order to build up safety stocks.

Another factor weighing on building activity in September was new orders, which fell for a third successive month. A number of firms reportedly lost clients.

Nevertheless, despite subdued demand conditions, construction firms were more optimistic about future activity levels. Expectations were strong by historical standards and at their most positive since June. Increased confidence was underpinned by forecasts of an improving investment climate and a subsequent rise in workloads.

Improved optimism coincided with the fastest rise in staffing levels in just shy of two years during September. Employment in the French construction sector has now risen in three of the past four months.

Commenting on the latest survey results, Joe Hayes, Senior Economist at IHS Markit, said: “Against the backdrop of slowing growth in the manufacturing and service sectors during September, the Construction PMI survey showed falling building activity once again, meaning the sector has failed to register growth at all during the third quarter.

“Some of the issues plaguing the wider economy were also key sticking points for construction firms too, as a substantial worsening in delivery times due to supply issues impeded activity. That said, there was also evidence of weak underlying demand conditions, and some firms even noted losses in their client bases.

“However, there were some positive signs from the survey data. Many firms are anticipating higher workloads over the coming 12 months as investment appetites improve. This supported an expansion in staffing levels — the strongest for almost two years. This signals that firms don’t expect the current lull in the construction market to be protracted.”

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