French June Consumer Spending Falls 0.4% on Car Sales

By Helene Fouquet

July 23 (Bloomberg) -- French consumer spending on manufactured goods fell in June as surging food and oil prices curbed purchases of goods such as cars.

Household spending, which accounts for about 15 percent of the economy, fell 0.4 percent from May, when it rose a revised 1.7 percent, Insee, the national statistics office in Paris, said today. Economists expected a 0.6 percent drop, the median of 25 estimates in a Bloomberg survey showed.

``As oil prices increase, French households are turning their back on car purchases,'' said Jean-Christophe Caffet, an economist at Natixis in Paris, said in an interview with Bloomberg Television. ``This holds to our estimate as we were expecting a drop after May's rebound.''

Consumers are feeling the pinch of accelerating inflation and slowing economic growth. Soaring food and energy prices drove inflation to a 16-year high of 4 percent in the 15-nation euro region last month. France's economy will expand 1.6 percent this year, the slowest pace in five years, as rising prices damp consumer spending, Insee has forecast.

A gauge of consumer sentiment in France last month dropped to the lowest since Insee introduced the index in 1987. French retail sales fell in June as higher inflation sapped household spending, prompting retailers to reduce annual profit- and sales-growth goals.

Consumer `Malaise'

``The negative economic environment with all consumer indexes on the decline, the weakness in the labor and real estate markets and income being eroded by inflation are causing a malaise among consumers,'' Yann Lepape, an economist at Oddo & Cie. said in an interview yesterday.

Shares of Carrefour SA, Europe's biggest retailer, fell to the lowest in more than five years on July 10 after saying second-quarter sales growth slowed on weaker spending at its French superstores. Casino Guichard-Perrachon SA, the biggest supermarket owner in Paris, said shoppers returned to its smaller, urban discount outlets, fleeing suburban superstores because of rising gasoline prices.

Pessimism is growing across Europe. Italian consumer confidence slumped in July to the lowest level since the 1993 recession, the Rome-based Isae Institute reported yesterday. German consumer confidence fell to the lowest in more than two years in July.

Yearly Growth

Spending on French manufactured goods stagnated in the second quarter after expanding 0.1 percent in the first three months. Year on year, consumer spending growth slowed to 1 percent in June from a revised 2.8 percent in May, Insee said.

Spending on cars in France fell 3.8 percent in June from the previous month, and purchases of clothes and leather goods rose 0.6 percent, compared with a 4.4 percent increase in May, Insee said today. Spending on home appliances and furniture increased 0.8 percent.

To lift consumer confidence French President Nicolas Sarkozy is planning to introduce tax breaks for companies that distribute a bigger share of their profit to employees, loosen retail rules to boost price competition, and increase energy subsidies for the poorest households.

``We expect a rebound in consumer spending as we see inflation decreasing in the fall and oil prices getting stable,'' Caffet said.

The May consumer-spending figure was revised down from a previously reported increase of 2 percent.

To contact the reporter on this story: Helene Fouquet in Paris at hfouquet1@bloomberg.ne.