Economy in Brief

French household confidence ticked higher to 88.4 in June from 88.3 in May, retaining most of the drop from April to May.

June confidence has a 24.8 percentile ranking near the upper border of its bottom 25 percentile on a ranked basis. The standings are coded nearly uniformly in red, indicating bad economic results. While price diffusion below 50 is good news, weak prices like that also suggest ongoing weak economic activity. For most the survey indicates a standing below the 50th percentile that implies a reading below its median on this timeline back to 2001. Unemployment has a high 81 percentile standing and is coded read because a high standing for unemployment is bad news.

The favorability to save is strong. The standings had coded black. But often when the favorability and ability to save is high, it is because the spending environment is poor, and it is true here with the spending environment with a 26.5 percentile standing.

Living standards for the next 12 months have an extremely low 6.5 percentile standing.

Two columns to the right chronical changes in the survey value over two periods for Covid and to the invasion of Ukraine and then from the date of Ukraine’s invasion to the current observation. Among the increases in readings since Ukraine’s invasion is a sharp increase in expectation of unemployment and an increase in the favorability to save.

Not only is confidence net lower since the invasion but inflation assessments are lower as well.

The favorability to spend has increased since Covid struck but then after Ukraine was invaded the favorability to spend fell, unwinding most of its recovery since Covid struck.

On balance, the INSEE survey remains weak and French consumers are troubled. There had been some recovery in train, through mid-2024. But since then, the recovery has eroded as the chart at the top of this report shows.

However, perhaps the quick end to the Middle East war and the prospect of less risk to oil markets can help restore confidence. Ukraine’s war with Russia is still in progress. But with the Middle East war stalled- at least for a while, perhaps attention can be shifted to Ukraine with a meaningful positive impact.

The IFO shows reading that are stronger this month and are showing legacy of being in an upswing – the current index, the climate reading and expectations- all are swinging higher.

Despite the clear turn revealed in the chart, the rankings of the climate, current, and expectations readings remain extremely weak. Among the 18 readings for five sectors and a headline on each of three measures only three of these readings – three of eighteen- have standings as of June at or above their historic median (above a ranking of 50%) back to March 1993.

The climate measure shows a ranking in its 21st percentile in June. That corresponds to a reading of -15.3 in June, an improvement from -16.0 in May. Climate readings improved across all sectors in June except retailing where the climate reading backtracked to -20.3 from -18.6. In terms of the sector percentile standings, only construction has a reading above its median- above a standing at its 50th percentile.

For current conditions, the June measure improved to -3.5 from -3.9 in May. The current ranking is still a weak 13.4 percentile standing. In the current index, the manufacturing and retailing sectors each took a step back in June. Services and wholesaling improved month-to-month. Construction was unchanged in the month. The current readings are much more mixed than for the other two environmental responses in climate and expectations. However, current conditions rank at an extremely weak level of 13.4%. The percentile standings are above the 50% level in construction and in retailing.

Expectations stepped up, improving month-to-month to -9.9 in June from -13.3 in May. Improves swept across sectors only leaving out improvement in retailing where conditions owed to -28.1 in June from -25.1 in May. The service sector reading improves sharply with expectations rising to -3.6 from -10.9. However, all readings under expectations are below their respective historic medians. The strongest reading is 39.2% in construction with the weakest being a 14.7 percentile reading in retailing.

The second ranking column, to the far right, re-ranks all the sectors in the various environments since the Russian invasion of Ukraine. That even took an economy that has been recovering from Covid and took readings down to fresh lows. Looking at valued on that short horizon, expectations have rarely been higher; all expectations are in their respective 90th percentile standing except retailing only in its 80.5 percentile- all of these are strong on this reduced timeline. The climate reading is at its 58.5 percentile overall on this short post invasion timeline with all readings except manufacturing having readings above their 50th percentile. However, the current reading while largely stronger than the full period rankings for ‘current’ really are not that different and note that the current conditions continue to be quite weak even over the shorter horizon.

The bottom line seems to be that expectations are turning higher and the climate has improved but the current situation is changing only slowly. This is a case in which ‘survey type data’ seem to be showing or hinting at improvement in train to a greater extent that current data which should be best reflect in traditional ‘hard data’ reports would lag. It is a cause for optimism.