Dec. 23 (Bloomberg) -- French consumers cut spending on manufactured goods by 2.8 percent in November, the largest decline in seven years, as rising unemployment deterred purchases of clothing and cars. Spending fell after increases in September and October, Paris-based statistics office Insee said. Spending was expected to drop 1.2 percent, according to the median forecast of 19 economists surveyed by Bloomberg News. ``Everyone's gloomy at the moment and people are very concerned about what comes out of their pocketbooks,'' Jackie Pellieux, chairman of Joueclub, a chain of 300 toy stores, said in a televised interview with Bloomberg News.
Growth in France, which makes up a fifth of the 12-nation euro economy, may lag the European average this year for the first time since 1997 as consumer confidence nears a six-year low and unemployment approaches 10 percent. Department stores such as Pinault-Printemps-Redoute SA, Europe's largest non-food retailer, suffered a 12 percent drop in November sales, the Paris Chamber of Commerce said. November's drop in consumer spending snapped increases of 3 percent in September and 0.9 percent in October, when shoppers returned to the stores they deserted during a heat wave in August.
Clothes, Cars
Purchases of clothing declined 9.2 percent in November, reversing October's 6.3 percent increase. Spending on cars fell 5.7 percent after a 3.8 percent decline in October. ``Shoppers are being extremely selective about what they buy and their demand is highly influenced by aggressive discounting, particularly at the moment for electronic goods,'' said Emmanuel Ferry, an economist at Paris brokerage Exane SA. The euro was little changed, buying $1.2416 at 10:30 a.m. in Paris, close to yesterday's record of $1.2450. The yield on three- month interest rate futures for June delivery declined 1 basis point to 3.30 percent, the lowest since Oct. 2. A basis point is 0.01 percentage point. France's economy probably grew 0.2 percent this year, Insee estimates, the slowest rate in a decade. That isn't strong enough to trigger hiring by manufacturers struggling to lower costs to lift profits under pressure from the euro's appreciation.
European Recovery
The European Commission predicts the euro economy will grow 0.4 percent this year, accelerating to 1.8 percent in 2004. The unemployment rate for the region has also held at 8.8 percent in the eight months ending October. The drop in consumer spending tempers other reports suggesting the economic recovery is gathering pace in France. Manufacturers were at the most confident in 11 months in December, mirroring the rise in German business sentiment to almost a three-year high. Insee also predicted the economy would grow as much as 2 percent next year. ``Early indications on Christmas sales aren't very good,'' said Stephane Deo, a Paris-based economist at UBS AG, adding that improving business sentiment still hasn't translated into hiring. That suggests it will take longer for consumers to feel the benefits of the economy's recovery. Manufacturers have shed a net 209,200 jobs in the past 2 1/2 years, more than offsetting hiring by services companies and construction companies in two of the past three quarters. Alstom SA, which made the world's largest liner Queen Mary 2, is cutting 7,000 jobs worldwide, while specialty chemicals maker Rhodia SA is trimming 572 jobs in France.
Unemployment
A report on Dec. 31 will probably show 15,000 more people were seeking work in November, according to the median estimate of five economists, too small a rise to change the jobless rate. The jobless rate, at 9.7 percent in October, will near 10 percent in the first quarter of next year, Insee predicts. ``More than a quarter of the population is personally affected by the recession and there's been a significant drop in their planned Christmas purchases,'' said Gilles Goldenberg, a partner at Deloitte Touche Tomatsu. ``It's the first time we have seen such a drop. I thought Christmas was completely safe.'' Goldenberg's firm found in a November survey of 1,255 shoppers that the average French household budget for Christmas purchases was 565 euros ($681), or 31 percent less than last year. Prime Minister Jean-Pierre Raffarin lowered income taxes and granted tax rebates worth 3.9 billion euros this year and plans 3.3 billion euros in tax reductions next year. These are being masked by higher payroll taxes, local government charges and an increase in tobacco prices.
Housing Starts
One part of the economy that stands out is the housing market, as homebuyers take advantage of interest rates at their lowest level, for France, since 1946. New home sales rose by 33 percent in the third quarter and a report today showed construction companies started building 3.9 percent more homes in the three months ending Nov. 30 compared with a year earlier. Purchases of household goods, ranging from garden furniture to washing machines, rose 1.7 percent last month, today's consumer spending report showed. Today's consumer spending index covers about 27 percent of total household spending, which in turn accounts for more than half of France's gross domestic product. It doesn't include food, energy or services. Consumer spending rose 1.4 percent from November 2002. //www.bloomberg.com