French October Consumer Spending Falls as Labor Market Worsens

By Sandrine Rastello

Nov. 21 (Bloomberg) -- French consumer spending on manufactured goods slipped the most in four months in October as companies in the euro region's second-biggest economy cut jobs to weather the global economic slowdown and credit crunch.

Such spending, which accounts for about 15 percent of the economy, fell 0.4 percent from September, when it rose 0.5 percent, Insee, the national statistics office in Paris, said today. Economists expected a 0.5 percent decline, the median of 20 estimates in a Bloomberg survey showed. From a year earlier, spending rose 0.7 percent.

After helping the economy dodge a recession in the third quarter with their spending, consumers may keep a lid on purchases in coming months as the outlook for the labor market worsens. The French economy nearly stalled in the three months through September after contracting the previous quarter, leading to a surge in jobless claims and a pledge by the government to try to subsidize new jobs.

``The main source of preoccupation is the labor market, which is going to deteriorate further,'' said Dominique Barbet, an economist at BNP Paribas in Paris. ``You can expect a worsening of consumer spending.''

Companies are already feeling the pinch of shoppers' wariness. L'Oreal SA, the world's largest cosmetics maker, last month cut sales and profit forecasts for the third time in less than four months as European and U.S. consumers curbed spending.

EU Contraction

The French economy grew 0.1 percent in the third quarter when the 15-country euro region contracted 0.2 percent. The growth may be short-lived. The Bank of France predicts a 0.5 percent contraction in the current quarter.

``It's just a matter of time before the country goes into a recession,'' said Daniele Antonucci, an economist at Merrill Lynch International in London.

The economy destroyed jobs in the past two quarters. Yesterday PSA Peugeot Citroen, Europe's second-biggest carmaker said it will cut 3,550 workers through voluntary departures as the region's auto-market downturn gathers pace. Its rival, Renault SA, plans to trim 6,000 European jobs.

Sarkozy last month pledged to add 100,000 government- subsidized jobs in addition to 230,000 already planned for 2009. In exchange for pledging 360 billion euros ($451 billion) to support cash-trapped financial institutions, he's also pressuring banks to continue lending to companies.

Spending on cars in France slipped 0.9 percent in October from the previous month, and purchases of clothes and leather goods dropped 0.6 percent, compared with a 2.8 percent increase in September, Insee said today. Spending on home appliances and furniture rose 0.2 percent. The September 0.5 percent increase was revised down from an initial estimate of 0.6 percent.

The decline in crude oil prices, which dipped below $50 a barrel yesterday after climbing as high as $147.27 in July, is giving households some breathing space before the Christmas shopping season. Inflation slowed the most in almost a year in October.

-- With reporting by Ladka Bauerova in Paris and Claudio Fede in London. Editor: Andrew Davis

To contact the reporter on this story: Sandrine Rastello in Paris at srastello@bloomberg.net;