French Consumers Show Mixed Feelings In July

French consumer confidence fell slightly in July as forward-looking components of the survey failed to rebound further while other components are still deteriorating. It is remarkable how optimistic consumers are about their future personal financial situation and purchasing intentions remain elevated.

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Slight step back, but still at remarkably high levels

French consumer confidence showed signs of a rebound in June but fell back in July.

The main index, which reached an 18-month low in May at 92.5, had rebounded to 96.3 in June before falling back to 94 in July, which is way below its long term average of a 100 and its February level - 104.5, one of the highest in the decade, as confidence had just recovered from strikes and the “yellow vests” crisis. It seems that the past components of the survey, which are still deteriorating in July, outweigh the outlook components, which are stagnating.

Indeed, households point to deteriorating personal financial situations in recent weeks as well as lower living standards in the country. As a consequence, they find it more opportune to save now, but also in the future as their saving intentions reach their highest since 2014. This, of course, has an impact on their purchasing behavior.

Nevertheless, households show almost as much confidence in their future personal financial situations as they did last month: although they are not as optimistic as they were at the end of 2019. The last two months - June and July are among their highest levels of optimism in the decade, which is remarkable given the current amount of economic uncertainty.

Also, purchasing intentions deteriorated only slightly in July and remain as high as in early 2019. The main component holding back household confidence from returning to the high levels seen at the beginning of the year is their fear of unemployment. With one in two private employees temporarily unemployed and more than 1 million more unemployed people in the last three months, the situation on the labor market remains exceptional and worrying.

Saving intentions are on the rise

Source: Refinitiv Datastream

Fears of unemployment will continue to cast their shadow

We expect this to continue in the coming months. Indeed, while the unemployed population is expected to shrink by about half a million people before year-end, this will still leave the unemployment rate at 10.5% at the beginning of 2021. Indeed, more and more temporary workers will find new jobs, notably thanks to the revival of the tourism and hotel sector, but they will be partly replaced in the ranks of the unemployed by the temporarily unemployed who will be victims of the bankruptcy of their employer and will, therefore, slow down the decline.

Removing all doubts from consumers will therefore take time. Hence they could, once the holidays are over and with it the euphoria of renewed freedom of movement, return to more cautious saving and consumption behaviors after the summer.

In any case, today's figures confirm the fact that the rebound in activity in the third quarter will be driven primarily by household consumption.

We expect growth to reach 45% QoQ annualized in 3Q20, which should allow the 2020 recession to remain south of 10%.