RTTNews - French household consumption expenditure unexpectedly dropped in May after recording a surprise increase in April due to declines in spending on textile-leather and on other manufactured goods. At the same time, business confidence in June rose more than anticipated as general as well as personal production outlook improved.

Data released by statistical office INSEE showed Tuesday that consumer spending dropped 0.2% month-on-month in May following a revised increase of 0.5% in April. Meanwhile, economists had forecast an increase of 0.2%. On an annual basis, spending was down 1.6%.

In May, growth in spending on durables eased to 0.7% from 1.9% in April due to a 0.8% fall in expenditure in equipment goods. The government's EUR 1,000 car scrappage scheme once again helped to lift spending on automobiles, which grew 2.4%.

Consumption expenditure in textile-leather dropped 1.4% in May after a revised drop of 0.2% in April. Spending on other manufactured goods was down 0.3%.

Inflation in France fell into negative territory for the first time since 1957, but the rising number of unemployed is offsetting the impact on the economy. Yet, INSEE expects household consumption to rise 0.3% in the second quarter, a growth of 0.1% each in the third and fourth quarters of the year, which will take the full year gain to 0.7%, down from 0.9% in 2008.

In its latest economic outlook for France, INSEE also forecast households' purchasing power to grow 0.7% in the second quarter and then to remain flat in the third and fall 0.2% in the final quarter. Hence, the full year increase in the purchasing power would be 1.1%.

The statistical agency has warned that the weaker condition in the French labor market would continue and the unemployment rate could reach 10.1% in the fourth quarter in Metropolitan France.

Also on Tuesday, results of the latest business confidence survey revealed that sentiment rose for the third straight month in June. The confidence indicator rose to 75 from a revised 73 in May. The reading was above the expected figure of 74.

The indicator measuring personal production outlook rose to minus 18 from minus 28 and that for the general production outlook climbed to minus 40 from minus 50. At the same time, total as well as export demand weakened in May. Both indicators dropped to minus 70 from minus 69, respectively in June.

The French economy has contracted since the second quarter of 2008 and the recession is expected to continue till the third quarter of 2009. INSEE predicts a 0.6% fall in the gross domestic product in the second quarter, a further drop of 0.2% in the third quarter and stabilization in the final three months of the year. For the full year, the statistical office sees a contraction of 3%.

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