Key Findings:
Construction activity in France continued to fall in August amid a further deterioration in demand conditions and a subsequent drop in new work. The lack of new projects led companies to trim input purchasing and reduce headcounts. The latest data also showed that lingering supply-chain disruptions and raw material scarcity pushed up cost burdens. The rate of input price inflation eased from July’s record, but was nonetheless one of the sharpest seen in the 21 years of data collection.
Posting 44.9 in August, 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 — was in contraction territory for the third successive month. Moreover, falling from 48.5 in July, the latest reading was indicative of a marked pace of reduction that was the quickest since February. Among those panellists that signalled lower output there were mentions of fewer new orders and the loss of existing clients.
Business activity decreased across the three broad areas of the construction sector. Civil engineering saw the sharpest pace of contraction, while the slowest drop was evident for housing work.
As was the case in the prior survey period, new business received by French construction firms decreased in August. The pace of contraction was little-changed from July and moderate relative to the series history.
The deterioration in demand conditions caused a renewed decline in employment midway through the third quarter. Some panellists also linked the fall in payroll numbers to fierce competition for workers and voluntary resignations. The overall pace of job shedding was only fractional.
Companies also reduced their buying levels in August. The decline ended a five-month sequence of expansion, but was modest overall.
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French constructors again indicated that raw material scarcity and logistical issues led to a deterioration in supplier performance. Average lead times lengthened to the least extent in four months, albeit one that was unseen prior to the COVID-19 outbreak.
Difficulties sourcing raw materials in turn pushed up input costs. Despite easing from July’s survey peak, the rate of inflation was one of the sharpest seen since data collection started 21 years ago.
In addition to signalling a decline in employment, companies noted a reduction in the use of sub-contractors. The fall was the quickest since April. Firms also reported a sharp deterioration in the availability of sub-contractors, alongside an increase in fees charged by them.
August data indicated that French builders were confident of a rise in business activity over the course of the coming 12 months, with optimism supported by quote requests and the opening of new sites. However, the overall level of positive sentiment slipped to a four-month low amid concerns regarding material shortages and the loss of existing clients.
Commenting on the latest survey results, Pollyanna De Lima, Economics Associate Director at IHS Markit, said, “Construction again lagged behind the manufacturing and service sectors with regards to output. While growth of business activity among goods producers and service providers was underpinned by strengthening demand conditions, the downturn among French builders mirrored another decline in new work. Similarly, jobs fell in construction whilst rising elsewhere.
“Underlying data showed a widespread deterioration in output across the three monitored categories, with quicker declines seen for housing, civil engineering and commercial work.
“French builders also faced other setbacks such as a further deterioration in the availability of subcontractors, difficulties sourcing key materials and rising expenses. The rate of input price inflation was close to July’s survey record.
“Business confidence took a hit in the latest month, sliding to the lowest in four months as firms became increasingly concerned about raw material scarcity and subdued demand conditions.”
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