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Economy in Brief

French 'Household Confidence' Tics Up- Does It Mean Anything?
by Robert Brusca  July 26, 2013

French household confidence has risen from 79 in June to a level of 82 in July. However, the rebound is a pretty shallow affair. While the index reading is higher than it was in May and in June when the level stood at 79, apart from those two months, you have to go all the way back to December 2008 to find a lower reading on household confidence by the French consumer That's over four and one half years ago.

The rise, a shallow rise, only marks the current reading as standing in the bottom 5% of all French household confidence readings in their history back to January 1990. Living standards metrics for French households in the past 12 months and those expected for the next 12 months are extremely weak too; the past 12 months reading lies in the bottom three percentile of its historic queue while the outlook for the next 12 months is weaker still, in the bottom 1.4 percentile.

The reading for expected unemployment is in the 87th percentile of its historic range of values implying that it has been higher than this only about 13% of the time. It at least made a huge improvement this month.

On the inflation front, inflation readings suggest that past inflation is a middle of the range affair as it's been higher only about 45% of the time and lower about 55% of the time. However, looking ahead to the next 12 months, the expectation reading lies in the 89th percentile, implying that inflation expectations have been higher only 11% of the time. This definitely is not the kind of reading the European Central Bank wants to see.

The readings on the favorability of saving versus spending for major purposes just shows that it is quite favorable to save, bot to spend. The saving environment is only better 9% of the time: households figure that their ability to save is better than this only 4% of the time. But that's the other side of the coin of the consumers' saying that the favorability for spending and major purchases is only in its 16th percentile. That means the spending environment is only worse than this 16% of the time and better than this 84% of the time. For an economy that's trying to kick-start some sort of growth this is not the kind of mindset you want for your consumer.

In addition, the financial situation for the past 12 months is cited as having been worse only 2.5% of the time. But what's worse than that is that the outlook for the coming 12 months has been worse only 1.4% of the time.

The best news in the consumer survey despite its current adverse reading came from the expectation for unemployment over the next 12 months. While the reading is only worse about 13% of the time the actual raw reading improved quite a lot from reading of 82 in June to a reading of 65 in July. So despite what are obviously heightened concerns about unemployment after hitting a high spot in June those concerns have begun to dissipate. Even the spending environment that is assessed so adversely as improved relatively sharply month-to-month and generally over the past few months. The assessment of the financial situation over the past 12 months deteriorated fairly sharply about two months ago and in July has only made a small step back from that assessment. The outlook for the financial situation over the next 12 months remains extremely week with very little evidence of improvement over the past string of months.

France continues to have severe budget issues and it's widely expected that the French are going to turn a cold shoulder to austerity demands and even to 'required' monetary union debt to GDP ratios and instead focus attention on getting more growth. The austerity model clearly has failed and it's failed in France as much as anywhere. But in France failure is more because the French have done what they could do to avoid imposing any austerity. As a result of that the French economy hasn't fared as poorly is the economies in Southern Europe but on the other hand it hasn't tried to make any of its fiscal progress except by raising taxes on the rich and using those monies to continue spending. That strategy doesn't seem to have made consumers feel any better.

As a result of the dire level of the readings for confidence and the small improvement in the overall household confidence index it's hard to mark this household confidence measure in July as a significant positive.

However, July 2013 may turn out to be a turning point in consumer feelings. The real nugget of good news in the report is that the expectation for unemployment fell so sharply on the month and with that drop expected unemployment was last lower than the current level in June 2012 nearly a year ago. Consumer fears of unemployment are lower than they have been in about one year. That's good news.

However, the cycle low for unemployment expectations came around May of 2011 at a value of 27 and that compares to the current reading of 65; it is still relatively elevated. The highest level for unemployment expectations in the financial crisis was a level of 86 reached in June 2009. That compares to the level of 82 reached in June 2013, just last month, a level from which the current reading has just fallen sharply. In fact out of 402 readings on unemployment expectations reaching back to January 1980 the monthly drop of 17 points in July 2013 ranks as the 11th largest drop in the history of the series, making it an event that occurs less than 3% of the time. So in its own way the monthly improvement in unemployment expectations is just as rare a reading as are the current levels of the adverse readings for many of the components it's of household confidence itself. But for that to become a significant factor, these declines in expected unemployment are going to have to continue and other confidence metrics are going to have to improve.

Will they?

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