Spending by French consumers on manufactured goods fell unexpectedly in May, according to data on Tuesday that cast a shadow over recent signs of improvement in the euro zone's second-largest economy. The data from national statistics office INSEE showed a monthly fall of 0.2 percent, well below a consensus forecast for a rise of 0.2 percent.
INSEE also revised down last month's figure to show a rise of 0.5 percent from a previous reading of 0.7 percent. Total consumption for June fell by 1.6 percent compared to the same period a year earlier. The data came on the same day as an INSEE survey which showed business morale improved slightly in June, with a reading of 75 against an upwardly revised 73 from the previous month.
A separate purchasing managers survey also showed some positive signs, with a rise in the composite activity index to 47.7 in June from a previous figure of 46.6, with a slowdown in the rate of decline in new orders. The services PMI also fell to 47.5 from 48.3 in May and economists said the fall in consumer spending was a reminder that conditions remain highly uncertain and that any recovery is likely to be prolonged and fragile.
"It's still very very poor data," said Alexander Law, an economist at Paris-based consultancy Xerfi. "France is in the midst of a recession. At first it was very largely industry-based and now it's starting to slide towards services and household expenditure." Household consumption, which accounts for over half of gross domestic product (GDP) in France, has remained resilient since the start of the global financial crisis, helping the country to weather the downturn better than some of its neighbours.
GDP fell by 1.2 percent in the first three months of the year, compared with a steeper-than-expected 3.8 percent fall in Germany and a 2.4 percent drop in Italy. Bank of France Governor Christian Noyer said on Tuesday there were signs of stabilisation by the end of the year. But May's expenditure figures, which were propped up by a government trade-in subsidy for new cars, suggest consumers are finally succumbing to the climate of uncertainty sparked by rising unemployment.
"We're seeing a major trend where the only thing holding up consumption is cars," said Olivier Gasnier, an economist at Societe Generale in Paris. "New orders are building up, but that doesn't clear the horizon as order books remain low. There's no real solidity in this recovery trend." The trend was clearly reflected in Tuesday's spending data, which showed a sharp 1.4 percent monthly drop in sales of clothing and a decline of 0.8 percent in sales of electronic goods and furniture.
Just last week, INSEE said it expects some 699,000 jobs to go in the private sector over the course of 2009, pushing France's unemployment rate up to its highest level in a decade, at 10.5 percent.
Browsing round Paris' chic department store Galeries Lafayette, Anne-Marie Renault, a 49-year-old teacher in the Paris region, said she had been cutting back. "We're trying to be more prudent. Consuming less, saving more...I'm focusing more on the essentials, things that can't be cut back such as rent, food and anything for my child," she said.