France: Encouraging signs from the labour market – ING

Julien Manceaux, Senior Economist at ING, notes that the unemployed population continued to decrease in France in April, adding to signs that the labour market is slowly recovering.

Key Quotes

“A rebound of hiring intentions in May in the service sector confidence survey showed this week that the trend may continue, although it is still heavily dependent on government support.

Yesterday, figures published by INSEE showed that the much expected downward trend in French unemployment is continuing for the time being. The unemployed population reached 3.51 million in April, down from 3.58 million in December 2015. The first quarter saw a significant 50k drop in the unemployed population, after a total increase of 90k in 2015. It continued in April, with a drop of almost 20k.

Unfortunately, it did not prove sufficient to bring the official unemployment rate down, which remained at 10.2%. Still, there is a slight improvement as this rate is the lowest since the beginning of 2014, but it falls short of expectations and shows that there is still a long way to go for the French recovery to materialise into much better job data.

Recent confidence survey results by INSEE showed encouraging signs for employment in some sectors, notably in services where hiring intentions rebounded in May. Overall, business confidence improved this month, without being particularly strong (it was just above its long-term average). An improvement in the service sector confidence compensated for a drop in manufacturing where a decline in order books pushed confidence down. Improvements in confidence levels were also observed in other sectors like retail and construction.

In particular, any further improvements in service and building sector confidence levels should benefit employment growth: the service sector is the main job creating sector in France and investments from households in new buildings are still far from having recovered from the crisis, which should bring more activity and employment in the building sector in coming quarters.

In any case, more employment growth from the private sector is necessary to keep the French recovery on track, especially as this recovery is based on domestic demand. In the first quarter, the last government unemployment-fighting measures (helped contracts and training) accounted for half of the jobless population decline. In April, yesterday’s data showed that it was almost as much as 8.1k benefited from the public scheme.

Although it also means that 11,800 people actually found a job in April, which in itself is good news, yesterday’s figures show that job creation is still heavily dependent on government support. If employment growth does not accelerate faster, the momentum in consumer confidence and spending could fade away quickly after the rebound registered in 1Q (largely a post-November attacks catch-up).

All in all, unemployment will be lower in 2016, but the pace of decline needs to accelerate if this is to be translated into a consumption boost. At the current juncture, the first quarter figures already leave the French government growth target (1.5% in 2016) almost of reach. We now expect GDP to grow by 1.3% in 2016 after 1.1% in 2015.”