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Economy in Brief

French Household Confidence Eases Unexpectedly
by Robert Brusca  July 29, 2020

French household confidence according to the survey from INSEE slipped to 94.1 in July from 96.3 in June instead of advancing as expected. At this reading, household confidence has as queue standing in its 41.6 percentile, below its median.

Perusing the last column where the queue standings are located, it is clear that there are not a lot of good things in progress in this report. Savings and the ability to save get very-high to high rankings which are good for financial responsibility but not a great signal for economic activity. The financial situation gets a rating in its 86.1 percentile, but that is for looking backward at the past 12 months; the look-ahead gauge has only a 53.1 percentile standing. A very strong standing of 96.7 accompanies unemployment which is a bad sign since it tells us that unemployment is still mightily feared and explains why household confidence is poor and also why they might be obsessed with saving. In that same view, living standards looking back are at a 32.2 percentile standing, but looking ahead they have a 12.2 percentile standing. The ranking on the statement ‘favorable time to make a major purchase’ has a sub-par 42.4 percentile standing.

Clearly, the French are not happy with current circumstances. There is a reason Macron went to the EU summit and pushed for more stimulus and more grants. While some on the U.S. seem to see how wonderfully Europe has handled this crisis, the people in France seem to be still shell-shocked and recoiling. By the way, policymakers in Germany are once again quite worried about the outbreak that there are experiencing in Germany right now. There is no magical way to deal with this virus.

With this virus, there is nowhere to run and nowhere to hide. Countries that have made the decision to try to eradicate it or minimize the virus are finding out how resilient and hard to contain this virus is. Only a few countries that are not as globally plugged in have been able to really control or eliminate the virus.

Sweden did not execute its plan for herd immunity as well as it might have. It did not protect its old-age and nursing homes well and like other places suffered a great number of deaths in those places. But its strategy to let the virus spread and keep it from overwhelming the medical system seems to be working as now Sweden’s infection rate has been falling steadily and substantially. Despite anything that anyone says about herd immunity or the absence of antibodies in previously infected people, Sweden reports and demonstrates that reinfection is not common- for whatever reason.

France, like German, the U.S. and many other countries, will be going though cycles of shutting down and opening up as the virus gets controlled then as the economy opens up and then as the virus spreads again. This stop-go action is very bad for merchants, especially those whose businesses are linked to social gathering like restaurants and bars but also many others.

It is easy to see why the drop in the household sector's confidence assessment has taken people by surprise since the INSEE gauge for the service sector and for manufacturing both registered nice gains in July. The household sector is bucking the trend for improvement we see elsewhere in France. But maybe households feel less cared for than businesses? Certainly, their high expectations for unemployment (a reading that has not changed much over the last three-months) is a sign that all is not well with households. At the very least, they need more reassurance. However, if we turn to the actual sector rankings, we see a different story. That is that the service and manufacturing sectors have been hit very hard and are still more greatly impacted than the household sector. Those two sectors are still rising from much weaker historic levels judging from their ranking. Meanwhile, the household sector saw its end-2019 index more or less halved at the low and has made substantial if not ongoing recovery. The manufacturing and service sectors in France are weaker than their end-2019 ranking (than the household sector) and then collapsed to lows close to their theoretical worst in each case before making what are still insubstantial recoveries.

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