French Consumer Spending Unexpectedly Drops 0.8% on Clothing

French consumer spending on manufactured goods unexpectedly fell in May as clothing purchases tumbled.

Such spending, which accounts for about 15 percent of the economy, fell 0.8 percent from April, when it declined a revised 0.1 percent, Insee, the Paris-based national statistics office, said today. Economists expected a 0.5 percent gain, according to the median of 33 estimates in a Bloomberg News survey.

The second straight monthly drop in spending may add urgency to President Nicolas Sarkozy's call for lower taxes. He aims to push 11 billion euros ($14.8 billion) of reductions through the National Assembly next month as higher interest rates begin to squeeze shoppers.

``France has a purchasing-power problem,'' Sarkozy told lawmakers yesterday in Paris. ``Salaries are too low and prices are too high.''

French households have the perception that their purchasing power has declined since the introduction of the euro, according to a separate Insee report today. That counters an annual 1.9 percent rise between 2003 and 2006. ``Public opinion continues to see a direct responsibility'' between the euro and higher prices, an agency study said.

The decline last month may reflect higher interest rates, said Jean-Christophe Caffet, an economist at Paris-based Ixis. ``We're seeing a slowdown in credit,'' he said. The European Central Bank this month lifted its benchmark rate to a six-year high of 4 percent.

`Modest' Growth

The Organization for Economic Cooperation and Development said last month that France had suffered ``more modest'' growth than its neighbors amid deteriorating trade. The agency left its forecast for growth this year unchanged at 2.2 percent and cut its 2008 prediction to 2.2 percent from 2.3 percent. France is set to lag behind Germany's expansion for a second year.

An 8.5 percent plunge in clothing sales last month dragged down total entire consumer spending, according to Insee. At the same time, auto purchases rose 1.6 percent and home furnishings advanced 1.8 percent.

From a year earlier, household spending on manufactured goods rose 1.7 last month, slowing from a revised 2.9 percent. The April decline was revised from 0.3 percent.

source:www.bloomberg.com