France: Manufacturing Experienced Unexpected Decline Last Quarter

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Recovery in the euro zone’s second-largest economy is struggling to take hold, as evidenced by an unexpected drop in French industrial production in July. Globally, manufacturing is becoming much more capital intensive. Mechanization and robotic developments are leveling the playing field and destroying the comparative advantage once enjoyed by China and other low labor cost producers. More large companies, which produce products, have actually stopped producing these products themselves; this includes everything from automotive parts and components to high end vacuum cleaners. Countries that are able to deliver these products and components for less but also have fewer regulations, less restrictions and minimal burdens are winning these manufacturing contracts.

French manufacturing jobs generally offer a higher monthly wage than other countries in the region, according to the ManpowerGroup Quarterly Market Report (QMR) for the third quarter of 2015. However, recent reports suggest output fell approximately 0.8% from June. This is the weakest reading since April. The QMR also notes that contract labor terms in France allow for no fixed-term contracts for permanent tasks, and an 18 month maximum contract term. Despite this, the temporary contracts employment rate increased by 0.2%, to 7.2% in the second quarter. This more mature, but more heavily restricted market, additionally requires full benefits and pay parity for workers.

France’s manufacturing output, which excludes energy production, fell 1% overall, led lower by a 2.9% fall in car making and a 2.7% drop in computer, electronic and optical equipment. This further fall in manufacturing output has economists concerned by the lack of stability. However, the economy created 23,800 jobs in the second quarter, the most in four years, according to non-farm payroll data released in the second quarter. With regards to hiring in the third quarter, the Manpower Employment Outlook Survey (MEOS) states that employers in the manufacturing sector report modest hiring intentions in the upcoming quarter with a Net Employment Outlook of +1%. Hiring prospects decline quarter-over-quarter by 5%, but improve year-over-year by 5% as well.

Employers surveyed by ManpowerGroup in France expect subdued hiring intentions for the October-December time frame. Once the data is adjusted to allow for seasonal variation, the Outlook stands at -2% and is the weakest reported since the third quarter of 2009. Hiring intentions decline by 6% and 4% quarter-over-quarter and year-over-year, respectively. For the October-December 2015 time frame, 5% of employers surveyed expect an increase in their workforce, 7% expect a decrease in their payroll, and 84% expect to leave their current workforces intact for the next three months.

“Despite a negative Outlook (across all sectors) at -2% for this final quarter of the year, and after three truly positive quarters, some recent indicators reveal encouraging prospects for the rest of the year. The recently announced zero growth may also explain the softening of employment prospects expressed here by business leaders”, according to analysis from Alain Roumilhac, President of ManpowerGroup France.

While France’s labor pool shifts gradually from younger candidates to those over the age of 50, the activity rate of people aged 15-64 increased in the second quarter and stood at 71.4% (an increase of 0.1%, quarter-on-quarter and year-on-year.) Labor law reform continues in France to reduce corporate taxes, drive job growth, and minimize unemployment patterns.