French Consumer Spending Drops as Slowdown Boosts Unemployment

By Sandrine Rastello

Jan. 22 (Bloomberg) -- French consumer spending on manufactured goods dropped more than economists expected in December as the slump worsened in Europe’s third-largest economy, sending unemployment higher.

Such spending, which accounts for about 15 percent of the economy, declined 0.9 percent from November, when it rose 0.3 percent, Insee, the national statistics office in Paris, said today. Economists expected a 0.2 percent decline, the median of 20 estimates in a Bloomberg survey showed. From a year earlier, spending fell 1.7 percent, after a 1.1 percent gain in November.

The number of jobseekers rose by the most on record in November and Finance Minister Christine Lagarde yesterday said it’s bound to keep rising as growth deteriorates. The European Commission expects the French economy to contract 1.8 percent this year, the worst performance since World War II.

“Unemployment has risen sharply in the last few months, and the expectations of future unemployment have also increased strongly,” said Sebastian Wanke, an economist at Deka Bank in Frankfurt. “Consumers are being more hesitant.”

Spending helped France dodge a recession in the third quarter. Purchases of manufactured goods fell 0.5 percent in the last three months of 2008, when the Bank of France estimates the economy shrank 1.1 percent.

Across Europe, companies are slashing spending and jobs as they grapple with the global economic crisis that is eroding demand for everything from chemicals and automobiles to luxury goods. The European Central Bank last week cut its key interest rate to match the lowest since the euro’s launch in 1999 while governments set up fiscal stimulus packages to bolster their economies.

Spending Package

French President Nicolas Sarkozy last month announced a spending package worth 26 billion euros ($34 billion) over 2009 and 2010. The government is also counting on seasonal, regulated sales started Jan. 7 to spur spending as the inflation rate fell to an 18-month low thanks to a drop in oil prices.

“I bought nothing in December because I knew the sales were coming up,” Melanie Nahme, a 28-year-old nurse who was checking out clothes at Galeries Lafayette department store in Paris, said in an interview on the first day of discounts.

Prime Minister Francois Fillon earlier this week pledged up to 6 billion euros to help the auto industry. Spending on cars rose 0.9 percent in December, helped by a government incentive, while falling 6.5 percent from a year earlier, today’s data show.

Purchases of clothes and leather goods slipped 1.2 percent from November, and house equipment goods dropped 1.8 percent.

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