Having shown tentative signs of a recovery in May, the French construction sector slipped back into contraction territory in June as activity fell at the fastest rate in four months. That said, there were plenty of positive takeaways from the survey as business confidence strengthened, order books continued to rise and firms hired additional staff.
There were considerable restraints on the supply-side however, as input lead times lengthened drastically amid widespread reports of input shortages. Consequently, input costs soared in June.
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 – slipped below the neutral 50.0 mark, falling from 51.1 in May to 48.9, and thereby pointing to a renewed decline in construction activity across France. Moreover, the contraction was the sharpest in four months, albeit only mild.
Data broken down by sector showed decreases in housing and civil engineering activity with the latter registering the quicker contraction. Meanwhile, commercial activity expanded for a second month running.
Despite lower activity levels, French construction firms registered an increase in new orders during June, stretching the current period of growth to four months. Overall, the rate of increase was mild and slowed from May’s 37-month peak.
Growing order books helped lift business confidence further at the end of the second quarter. The level of positive sentiment increased for the second month running and was the strongest for almost two years. According to survey respondents, current work and projects in the pipeline are expected to support activity growth over the coming 12 months.
The optimistic outlook encouraged French construction firms to hire additional workers during June for the first time in three months. Although only moderate overall, the rate of jobs growth was the strongest since February 2020.
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Elsewhere, the latest survey data signalled continued pressure on suppliers to the French construction sector as input lead times lengthened to one of the greatest degrees ever seen in the survey history. Anecdotal evidence suggested that material shortages were exacerbated by issues sourcing freight. Regardless, input purchasing increased at the secondquickest rate since July 2019.
As a result of strong input demand and dwindling supply, French construction firms faced soaring costs during June. The rate of input price inflation was among the sharpest ever recorded, with around 75% of respondents registering higher expenses.
Commenting on the latest survey results, Joe Hayes, Senior Economist at IHS Markit, said: “While it’s disappointing to see the headline activity index moving back below 50.0 and into contraction territory during June, there were still many positive signals from the June survey.
“New orders continued to increase, as they have done so for four months running now, while business optimism reached its highest level for almost two years. There were some reports that order books had filled up enough to support growing activity levels over the year ahead. The strongest rise in employment since February 2020 also provided more evidence that French construction activity is poised to improve in the near-term.
“That said, intense supply chain dislocations persisted into June. Firms are finding it challenging to source materials, and this is intensifying inflationary pressures. A continuation of this will certainly interrupt hopes of a smooth recovery in the sector.”
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