HCOB France Construction PMI: Constructors Report Fastest Falls in Orders and Employment Since May 2020

Key Findings:

• Protracted downturn in construction activity worsens in October
• Accelerated contractions in new projects and employment
• Constructors’ year-ahead expectations at their lowest since 2014

October HCOB PMI® data brought about more woes for the French construction sector as activity levels shrank at an even faster rate, while both new orders and employment posted their sharpest contractions since May 2020. Building material purchases were subsequently slashed, while concerns of persistently weak demand led firms’ year-ahead expectations for activity to drop to their lowest since late 2014.

The headline HCOB France Construction PMI Total Activity Index — a single measure that tracks changes in total industry activity compared with the previous month — fell to 39.8 in October, from 42.9 in September. The latest reading, which was well below the 50.0 no-change threshold and therefore indicative of a sharp decline in activity, marked the continuation of a protracted downturn in the construction sector. The latest figure was the lowest since July and extended a run of contraction that began almost three-and-a-half years ago.

Reductions in each of the three monitored types of construction activity were again posted and rates of decline accelerated across the board. The steepest contraction remained in the residential segment, with house building seeing yet another considerable decrease on the month. October’s contraction was in fact the fastest since June. Commercial construction followed closely behind with a substantial fall from September. Civil engineering — which had shown some degree of resilience in recent months — posted a markedly quicker drop in activity, although the pace of decline was much softer than those seen elsewhere.

Dragging harshly on construction activity was a steep fall in new orders. October survey data signalled the steepest contraction in the volume of incoming new projects since May 2020.

In response to a further rapid fall in new business, French constructors made considerable cutbacks to their purchasing activity. The extent to which input buying shrank was the joint-most severe in almost five-and-a-half years.

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Retrenchment strategies also impacted employment, with construction sector jobs numbers decreasing for an eighteenth successive month. The latest reduction was also the most marked since May 2020. Panellists cited resignations and cuts to permanent contracts.

Fears that the weak demand environment would persist weighed heavily on firms’ expectations for the next 12 months. Not only were survey respondents pessimistic towards the outlook, but they were also their most downbeat in 11 years.

Turning to costs, French constructors recorded a pick-up in pressures as the fourth quarter got underway. The rate of input price inflation jumped to an eight-month high, but remained below the long-run average of the survey.

Commenting on the PMI data, Jonas Feldhusen, Junior Economist at Hamburg Commercial Bank, said, “Activity in the French construction sector plummeted in October. By sub-sector, residential building work recorded the steepest reduction, while commercial and civil engineering activity were also under significant pressure. Firms are grappling with severe demand weakness, as seen through another steep fall in new orders.

“French political instability is weighing on the construction sector via two channels. First, budget concerns are exerting upward pressure on bond yields, leading to tighter financial conditions for borrowers. Second, the broader political turbulence is fostering investor caution, leading to delayed business decisions and reduced investment momentum.

“The sector’s weakness has increasingly translated into workforce reductions. Employment has been on a persistent downward trajectory, mirroring a slump in purchasing volumes and reflecting the scarcity of new projects. Rising input costs only exacerbate the challenge, leaving firms with little room to manoeuvre.

“Subcontractor performance reflected the broader downturn in the French construction sector. Utilisation of subcontractors declined, while their availability increased and prices fell, likely in an effort to stimulate demand. These subdued market conditions contributed to a sharp drop in business confidence, which fell to its lowest level in eleven years, even weaker than during the pandemic.”

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