CH: UBS Consumption Index

Wed Mar 25 02:00:00 CDT 2015

Actual Previous Revised
Level 1.19 1.24 1.10

The UBS consumption indicator rose a solid 9 points in February but only after the January reading had been revised down fully 0.14 points to 1.10, its lowest level since September 2012.

February's improvement reflected a bounceback in new car registrations which had slumped at the start of the year due a hike in carbon taxes. These were up 13 percent from January although the first two months of the year still show a 3 percent decline versus the same period in 2014.

At 1.19 the mid-quarter print was the strongest in three months but its 1.15 January/February average was still well short of the fourth quarter mean (1.35). As such today's results should be indicative of a poor period for consumer spending and, quite likely, a contraction in real GDP this quarter.

The UBS consumption indicator tracks changes in real consumer spending and can be used as a gauge of the strength of domestic demand. A rising indicator value reflects rising consumer spending, which generally leads to economic growth and potentially augur inflationary pressures to come.

Consumer spending accounts for a large portion of the economy, so if you know what consumers are up to, you will have a pretty good idea on where the economy is headed. Needless to say, that is a big advantage for investors. The UBS consumption indicator is calculated using five specific indicators of spending and expressed in the form of an index. These indicators are: new car sales, business trends in retail, overnight hotel stays by Swiss nationals in Switzerland, the consumer sentiment index and credit card transactions. Because the index value is always positive, markets compare the current index value to the short and long-term average values in order to gauge Swiss economic health. In the long term the average has been approximately 1.5, but may change with time. The pattern in consumer spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth.