French Consumer Worries Intensify in the Wake of Russia Attack

French confidence is weak in June 2022. The value for June at 82.2 is lower than its 85.4 rating in May. The confidence indicator has been slipping since at least February. Late in February Russia, after a prolonged period of tension, invaded Ukraine and after that invasion the French confidence measure weakened sharply dropping from 96.7 in February to 89.6 in March and then continuing to drop.

French household confidence has a percentile standing in its queue of data since 2001 in the lower 3.5% of its historic queue of data. That means confidence has been this lower or lower only 3.5% of the time over the last 20 or so years- that's an extremely depressed reading.

Living standards for the past 12 months fell in June to -75 from -68 in May; this series has been somewhat slower to fall, but of course it's the backward-looking series of the last 12-months and it's about actual living standards not about expectations. As such, it is benchmarked to how the economy has been performing. Still, this index has fallen to a weak 8.2 percentile standing, another extremely low reading.

The forward-looking assessment of living standards shows a much more immediate and sharper reaction to the invasion as it has a -34 reading in February then it dropped to -61 in March. The June reading, at -69, reflects a 0.4 percentile standing and an extremely weak reading.

Despite the clear deterioration in expected living standards, unemployment for the next 12 months has not been greatly affected. This is somewhat surprising. The reading for unemployment was -2 in February, it improved slightly to +7 in March and since had a reading of +8 in June 2022. Its percentile standing is still weak, in the lower 17.9 percentile of its historic queue of data, but not as dramatically week as for living standards or for the overall confidence indicator. What is odder is that it has improved from its February reading.

Price developments show that inflation has been creeping up and is expected to continue to move up. In February, the assessment of past developments over the previous 12 months stood at 46; that was not changed very much as of March. However, by June that assessment had moved up to a reading of 60. Price developments are expected to generate pressure over the next 12 months as well. They were at a reading of -14 in February 2022; that moved up extremely sharply in March to a reading of +39. However, the reading has migrated back down to a level of +23 in April and to +10 in May, then to +4 in June. The current reading is still extremely high as both past and expected inflation developments have 97 percentile standings in their respective historic use of data. The expectation for future inflation is relatively high in rank but not as absolutely high as it was in terms of the level of the reading.

Assessments for savings are generally more upbeat. The assessment of the favorability to save was 31 in February and had slipped to 23 in June. The ability to save over the next 12 months looking ahead once had a reading of 12 in February, but that had slipped to -1 in June. The favorability for savings has a 72-percentile standing whereas the ability to save for the next 12 months has a higher 81.3 percentile standing. The savings assessments continue to be relatively strong.

The spending environment for making major purchases has been hit quite hard. In February, the assessment was at a -17, that deteriorated to a -22 in March and that continued to slip. By June, the reading had fallen to -35. That -35 reading has a 3.1 percentile standing in the historic data back to the year 2001, marking it as an extremely weak reading. Clearly French consumers are concerned about the war, they're concerned about the ECB’s ability to fight inflation, and all of this is having a detrimental impact on their willingness to spend.

The financial situation looking backward was assessed at -20 in February; it slipped slightly in March and continued to deteriorate. It now stands at a -30 reading in June. The financial situation looking ahead to the next 12 months had been a -6 back in February. It slipped sharply to a -22 reading in March and currently sits at a -24 reading. Those survey assessments show the financial situation for the past twelve months had a 15-percentile standing and for the next 12 months it has a 4.7 percentile standing – more extremely weak standings.

The timing of the deterioration in the French survey quite clearly connects it with Russia's invasion of Ukraine. The current assessments remain very low reflecting the risk from inflation and war as well as the ECB prepares for fighting inflation in the euro area.

Conditions are weak the overall household indicator. Confidence is 22 points lower than it was before COVID struck in January 2020. Expected living standards are 42 points lower than they were before COVID struck. Past inflation developments are 93 points higher than they were before COVID struck although price developments for the next 12 months are only 28.8 points higher than they were before COVID struck. The spending environment is 28-points weaker than it was before COVID struck and the financial situation looking backward is worse by 15-points than it was before COVID struck although the forward-looking financial situation assessment is even weaker, nearly 22-points lower compared to where it was before COVID struck.

The French consumer is obviously struggling with conditions on the ground and with the various challenges in the wake of COVID with the war going on in Ukraine with the inflation rate fired as well as by upcoming by European Central Bank policy actions. The ongoing recovery of the economy is challenged. However, the survey for the consumer is demonstrably weaker than the survey for manufacturing and for industry. For example, the industry climate reading has the 78-percentile standing and a 44-percentile standing for manufacturing expectations. Manufacturers still share with consumers very high standings for their perceptions of inflation. But their assessments for business conditions continue to be firm to very strong. The consumer portion of the French economy is clearly much more damaged than the business sector.