French Manufacturing Confidence Climbs in September

By Mark Deen

Sept. 23 (Bloomberg) -- French manufacturing confidence jumped to the highest in almost a year as recovery from the worst recession in half a century buoyed exports and depleted inventories.

The index of sentiment among factory executives rose to 85 in September from 82 in August, Paris-based statistics office Insee said today. Economists had expected that the index would climb to 81 this month, according to the median of 16 forecasts in a Bloomberg News survey.

The improvement reflects demand from retailers who slashed inventories as the recession hit its trough early this year. Even so, with unemployment rising, consumer demand will act as a brake on growth in the months ahead. Household spending fell 1 percent in August and 1.2 percent in July, Insee said today.

“We had a violent recession and this is the correction,” said Dominique Barbet, an economist at BNP Paribas in Paris. “The short-term outlook is good, though the medium-term is more worrying because consumers are cutting back. Growth potential in 2010 will be limited.”

Exports increased 9 percent in July from the previous month, according to the Finance Ministry. The same month, the number of unemployed actively looking for a job increased to 2.54 million, matching the 28-month high set in May.

Order Pickup

A measure of inventories held by manufacturers fell to zero this month from 5 in July and 12 in June, Insee said today. The reading for orders from abroad is minus 56, compared with minus 66 two months ago.

“More and more industrial executives are saying there is a pickup in activity,” Insee said. “Order books, from at home and abroad, are filling up, though they’re far from full.”

The improved French outlook fits with gains across Europe. A composite index of sentiment in the manufacturing and service industries across the euro region rose to 50.8 this month from 50.4 in August, Markit Economics said today.

Barbet said he expects French consumer spending to recover this month, though it will remain volatile. “Summer vacation is the easiest time to cut back so we’ll see a rebound,” he said. “Beyond that the perspective isn’t very encouraging.”

To boost spending, the main motor for economic growth, the government has pledged almost 4 billion euros ($5.9 billion) in measures including vocational training, tax breaks for low- income families and benefits for jobseekers and the disabled. The minimum wage was raised by 1.3 percent on July 1.

Finance Minister Christine Lagarde said yesterday that the government will maintain measures to bolster the economy until unemployment begins to recede. Lagarde travels to Pittsburgh today where she will join French President Nicolas Sarkozy and other world leaders for a Group of 20 summit on the economy and financial regulation.

“I would use the image of someone who is on crutches and is getting his mobility back,” she said, referring to the state of the economy. “You have to make sure the patient is able to walk again before taking the crutches away.”

To contact the reporters on this story: Mark Deen in Paris at markdeen@bloomberg.net;