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French consumer morale better but jobless rate up

PARIS - French consumer morale improved to its best level in nearly two years in September, official data showed on Friday, but a rising jobless rate raised questions about the economy’s performance in the months ahead.

Consumer morale was -22 in September from -25 in July. That was better than the -24 that analysts were expecting and was the most optimistic reading since October 2004.

But the data came after the Labour Ministry said on Thursday that French unemployment unexpectedly rose in August.

“Normally we would say that it (consumer confidence) should impact consumption,” said Alexander Law, economist at Xerfi.

“We’re more worried about the outlook we have had from other data. Such as unemployment actually -- this may be a more accurate look at where France is going at the moment.”

The jobless rate rose to 9.0 percent in August from 8.9 percent in July. Analysts were expecting it to continue the steady decline seen since last year by falling to 8.8 percent.

Unemployment data in Germany, a crucial trade partner for France, also disappointed on Thursday. That followed an encouraging September consumer confidence report released earlier in the week for the euro zone’s largest economy.

Government disappointment

Consumer spending drove the French economy in the first half of the year as industry lagged, struggling to export. Falling unemployment has made shoppers feel good, encouraging them to splash out on household goods and clothes.

This has been good news for Prime Minister Dominique de Villepin, who has portrayed fast growth and falling unemployment as a success for his government ahead of elections next year.

But he admitted on Friday the jobless rate was a setback.

“It’s not brilliant, it’s disappointing,” he said.

He said the rise was due to young people joining the jobs market for the first time after finishing their studies, and because unfavourable August weather kept seasonal hiring down.

Economists have questioned why the unemployment rate has fallen so fast when data on job creation is not as encouraging and when industry is slashing jobs.

Car maker PSA Peugeot-Citroen PEUP.PA is to scrap between 7,000 and 8,000 jobs in France this year while energy company Total TOTF.PA has announced plans to cut 300 jobs by 2011.

Industrial troubles

Other recent data has also highlighted the problems facing industry and raised questions about whether economic growth can be sustained into the second half of the year and into 2007.

Analysts say the fast growth in the first 6 months of the year puts the economy on track to meet the government’s target of between 2.0 and 2.5 percent this year.

But they say giving the same outlook for next year, as unveiled in the government’s 2007 budget on Wednesday, is optimistic given recent poor data on trade and industry.

“The interruption of the declining trend in the unemployment rate comes at the same time as a slowdown in the French economy,” said Nicolas Bouzou, economist at Asteres.

The budget included measures aimed at creating jobs and making people feel richer ahead of next year’s vote. Purchasing power has been eroded by high costs for energy and housing.

But, separate data on Friday showed petrol prices fell 0.3 percent in August from the previous month.

INSEE said producer prices rose 0.2 percent month-on-month in August. Excluding energy, August prices rose 0.3 percent.