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Economy in Brief

French Biz Confidence Drops
by Robert Brusca  June 8, 2012

The Euro-Area may be heading for the final summer of its discontent. Pictured above we show deteriorating French business confidence, as depicted in the survey from the Bank of France. The Bank of France also has formed a new outlook and it sees weaker growth ahead. In contrast, the Bundesbank has formed a new outlook and, on the basis of lower interest rates, (and probably a lower euro), it sees stronger growth ahead. Thus the troubles in the Zone are starting to fracture the cyclical moorings even between what have been core EMU nations. Low rates are not stimulative in the Southern economies that are scrapping for basis points of growth amid resolute German demands to hit austerity targets. Meanwhile austerity is good for Germany

Spanish banks are said to be ready to be mooted for a bail out this weekend.

The forces that are tearing the Zone apart are getting worse; they are not getting better. There is no healing. There is no compromise and there are no plans for anything that will bring immediate help. There have been some musings for a fiscal union and Eurobonds for ‘someday’ under different circumstances, even a fund to back banks… but none of this is slated to be timely.

French businesses assess their latest May production at a -12.62 reading down sharply from -1.89 in April. The May reading has been weaker than this only 3.5% of the time. That’s’ a grim metric on the current production situation.

The production outlook is better than that at a raw reading of 4.91 in May; it has rebounded from a reading of -1..17 in April and as such sits in the lower 34% of its range, not a good reading but much improved from the current situation’s ranked standing of 3.5%! Overall order books are in line with the outlook reading while they slip to a raw reading of -1.94 in May from -0.45 in April they also stand in the lower 34.7% of their range near the assessment for the production outlook.

But businesses assess the change in new orders with a -5.5 May reading down from -0.26 in April, a metric that stands in the lower 8.1% of its historic range. On balance that is not very reassuring about growth either.

Oddly the assessment for hiring in the latest month has a standing in the 42.5 percentile of its range quite strong given the reading on the current assessment for production. The outlook for hiring is even odder, in the 82nd percentile of its range. It is hard to imagine how this could be so. France has just elected a socialist government so maybe even business managers think they cannot let people go without repercussions, even in a weak economy. But this reading for expected hiring given the weakness in the outlook survey does not make any sense.

Overall the industrial sentiment index comes in at a raw reading of 92.71 in May, down from 94.43 in April. At that level, the reading stands weaker only 14.7% of the time. How could expected hiring be in the top 20% of its historic range with the overall sentiment gauge so pathetically weak?

One thing this poll result suggests to me is that consumer confidence in France is soon to get a lot worse. Businesses may find it impolitic to fill out surveys saying that they are planning to cut workers, but if their assessments on business conditions and future orders and production prove prescient their current assessments on employment will prove to be well off the mark. When the eventuality of weak conditions plays out, there will not be hiring and there will be firings and the socialists will be up in arms. If the huge marginal tax hikes go through business owners will feel even more put upon. While there is a pretty solid relationship between demand future hiring this month’s value pair represents one the largest discrepancies between the two readings. Something’s got to give.

I find it hard to analyze this report because the various employment standings do not go together with other aspects of the report. There is a clear sense of disconnect with reality in the employment survey.

Bank of France Monthly Industry Survey : Summary
oct'88 Avg
%-ile of
Ranked Values
Production-latest Mo
Total Industry -12.62 -1.89 7.3 0 6 3.5%
Production Outlook
Total Industry 4.91 -1.17 1.36 1 6 34.0%
Overall order books -1.94 -0.45 -0.34 5 3 34.7%
Foreign Orders -2.93 0.94 -1.72 1 7 11.9%
New Orders; Change
Total Industry -5.5 -0.26 -0.56 0 7 8.1%
Stocks: Finished Gds
Total Industry -3.65 -1.55 -0.93 -2 -2 26.0%
Capacity Utilization 76.9 77.94 78.29 79 79 7.4%
Latest Mo -2.32 -2.11 -0.54 -1 1 42.5%
Outlook -1.62 -1.97 0.18 -1 0 82.5%
Industry Sentiment Index 92.71 94.43 95.42 96 101 14.4%
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