Consumers trail optimistic businesses in eurozone

European business boomed again this month but consumers in France and Italy failed to share all the optimism, economic surveys showed on Thursday. French spending on clothes slumped in May and depressed overall expenditure on manufactured goods unexpectedly in the second-largest eurozone economy after Germany, national statistics office INSEE said.
Italian consumer confidence came in weaker than expected too in a June survey, touching its lowest level in a year because of concern over the state of the economy, Italian economic research institute ISAE said.
The reports confounded economists' forecasts and jarred with an upbeat business survey that showed healthy performances by the manufacturing and services sectors across the 13-nation euro currency area, also contrary to economists' predictions.
Activity in the services sector accelerated to its best in a year and picked up in manufacturing for the first time in four months, according to early readouts from surveys of corporate purchasing managers in June.
The "flash" results of the so-called PMI index, an indicator offering an earlier glimpse than previously of how well business is faring, rose in both cases. It logged a year-high 58.3 in services and a solid 55.4 in manufacturing, NTC Research, the firm that conducts the survey, said.
"Business confidence still seems to be operating in robust expansion territory in the eurozone," said David Brown, chief Europe economist at Bear Stearns International. "But this could be vulnerable if there is a pronounced downturn in consumer demand." The combined PMI reading for manufacturing and services rose to 57.7 from May's 56.8, suggesting growth in overall economic output remained healthy as the second quarter of 2007 drew to a close.
Bear Stearns' Brown said the dodgy consumer climate should serve as a warning to the European Central Bank on the downside of interest rate rises, while economist Jacques Cailloux at RBS bank said the business climate augured for more ECB hikes.
Cailloux said the PMI reports suggested GDP grew by 0.7 percent in the second quarter of the calendar year. GDP grew by 0.6 percent in the first quarter versus the last quarter of 2006, recovery year for Europe's economy.
Regardless of business, French people stopped dishing out money on clothes. Overall consumer spending fell 0.8 percent month-on-month in May, mainly due to an 8.5 percent drop in expenditure on textile and leather goods. "Weather conditions in May were absolutely dreadful. That meant consumers postponed their main expenditure on clothes," said Alexander Law, chief economist at Xerfi, a consultancy.
That said, newly elected French President Nicolas Sarkozy keeps saying people need more purchasing power, which may be either a reflection of public opinion or an influence on it.
Italians were not happy either. Household morale in June slid to 107.2 from 109.4, touching its worst since June 2006, when the index was 107.0. Analysts, wary about the ability of this survey to presage long-term trends, want to see what happens in coming months.