French Jobless Rate Stays at 7.6% as Economy Shrinks

By Sandrine Rastello

Sept. 4 (Bloomberg) -- France's unemployment rate failed to decline in the second quarter for the first time in 15 months as the euro region's second-biggest economy contracted.

The jobless rate stayed at 7.6 percent in the April-June period, Paris-based Insee, the country's economic statistics office, said today. Not including France's overseas territories, the unemployment rate was 7.2 percent, a 25-year low.

Companies are becoming more reluctant to hire as consumer spending wanes, the 46 percent rise in oil prices in the past year adds to costs and the euro's gain hinders exports. Gross domestic product fell 0.3 percent in the second quarter, and Prime Minister Francois Fillon now sees the economy growing about 1 percent this year, down from a previous forecast of as much as 2 percent.

``The slowdown shows in the job market,'' said Laurence Boone, an economist at Barclays Capital in Paris. ``This is going to maintain a strain on consumer spending.''

Renault SA, France's second-largest carmaker said Sept. 1 it will cut 4,000 jobs in the country as it faces flagging demand in Europe and soaring raw-material costs. Societe Generale, France's second-largest bank, said Aug. 26 it plans to hire 8 percent fewer employees than in 2007 in France.


European Contraction

Bonds fell after the unemployment report, with the yield on the 4 percent bond due April 2018 gaining 4 basis points to 4.38 percent. The euro rose 0.3 percent to $1.4538 at 9.32 a.m. in Paris.

Company investment, consumer spending and exports all declined in the euro region in the second quarter, pushing the economy closer to a recession. The 0.2 percent economic contraction in the three months through June was the first since the introduction of the euro almost a decade ago.

Companies are also facing tighter credit conditions as the European Central Bank keeps interest rates at a seven-year high and banks remain reluctant to lend in the wake of the U.S. subprime mortgage market collapse.

``The current environment, with difficulties in getting financing, and the economic slowdown, is not favorable to job creation,'' said Gerard de La Martiniere, who heads the financial committee at Medef, France's biggest business lobby, in an interview.

Inflation Accelerating

The French economy destroyed jobs for the first time in more than four years in the second quarter, Insee said Aug. 14.

``Employment is normally a lagged indicator, and we believe it is a question of time before weaker output growth is translated into a higher jobless rate,'' Diego Iscaro, an economist at Global Insight in London, said in an e-mailed note today.

The deterioration in the labor market comes at a time when inflation is accelerating at the fastest pace in 12 years, weakening consumer spending and aggravating the slowdown.

The rise in unemployment threatens to erase the rebound in President Nicolas Sarkozy's popularity, which rose to its highest level since January last month.

Lawmakers last month passed measures proposed by the government to boost retail competition, toughen jobseekers' benefit rules and increase work hours. Those efforts came after Sarkozy pushed through 8 billion euros ($11.6 billion) of tax cuts this year that failed to stave off the economic contraction.

Insee revised up the unemployment rate for the first quarter to 7.6 percent from the 7.5 percent initially reported. Economists expected a reading for the second quarter of 7.5 percent, according to the median of eight forecasts in a Bloomberg survey.

To contact the reporters on this story: Sandrine Rastello in Paris at srastello@bloomberg.net; Helene Fouquet in Paris at hfouquet1@bloomberg.net;