Global Daily – Reasons for caution on the French consumer rebound

by: Aline Schuiling

Euro Macro: Surge in French consumption in May less spectacular than it seems – France’s statistical bureau INSEE published its monthly consumption data for May. As shops were allowed to reopen during that month, the volume of consumption rebounded sharply, jumping by 36.6% mom, following two consecutive monthly contractions of 19.1% and 16.0% April and March, respectively. Although the rebound in May seems larger than the combined contractions in the two months before, base effects become more relevant when time series show monthly swings of such an exceptionally large magnitude. Therefore, in order to be able to better assess what has happened, on balance, since the start of the Covid-19 crisis and during the period of lockdowns, INSEE has compared the volume of consumption in May to the final month of ‘normal’ sales, which is February. It tuns out that in May, the volume of consumption was still 7.2% below the level of February. The detailed data show that consumption of food products was the only component that grew between February and May (+4.1%), whereas consumption of engineered goods contracted by 14% during the same period. Within engineered goods, consumption of durable goods fell by 19.1% between February and May, and within durable goods, the category that dropped the most was transport equipment (-25.1%).

Looking forward, consumption will probably rebound further in June, as shops reopened on 11 May, implying that June was the first month when shops were allowed to be open from start to end. Nevertheless, we expect the level of consumption to remain subdued and probably decline again in the months after June. To begin with, distancing measures have limited the number of customers. Moreover, consumers’ propensity to spend will probably remain subdued in coming months on the back of rapidly deteriorating labour market conditions and uncertainties related to the future developments of the virus and future economic growth. This is also reflected in the details of the latest report about consumer confidence. Whereas, consumer confidence rose in June (to 97, up from 93 in May), it remained below its long term average value of 100. Moreover, households’ assessment of their financial situating during the next 12 months remained below its long-term average value, while their expected saving capacity and savings intentions each rose. (Aline Schuiling)