Financial Matters and French Household Confidence

French households have become more confident since the beginning of the year. (In France, the measure of confidence is derived by calculating a weighted average of the balances of opinion on the following underlying series: the household's financial situation, its living standards, and conditions for savings over the past 12 months and expected over the next 12 months, and on unemployment developments and favorable conditions for major purchases. A mean index is created by setting the long term average to 100. Values above 100 represent above average confidence while values below 100 represent below average sentiment.)

Confidence in April was 88.2, up 1.5% from March and 5.9% from April of a year ago. However, as can be seen in the first chart that covers the entire history of the series, confidence has been below the long term average of 100 since August 2007, one of the longer spells below the average. Moreover, confidence has recently tended to be easily shaken. The financial crisis in the Euro Area appears to be affecting French confidence. Using the French stock market as a proxy for the effects of the Euro Crisis we plotted it with the confidence measure. The second chart shows French confidence and the French Stock market for the ten year period from 2002 to date. During this period, the correlation between confidence and the stock market in France was only .20. Leaving off the early years and concentrating on the troubled period from 2006 to date, the correlation between confidence and the stock market is.80.