CH: UBS Consumption Index

Wed Jul 29 01:00:00 CDT 2015

Actual Previous Revised
Level 1.68 1.73 1.62

The UBS consumption indicator rose for a third month in a row in June. From a weaker revised 1.62 in May, the headline index advanced to 1.68 to match its highest reading since December 2013.

The modest improvement reflected fresh gains in new vehicle registrations which were around 20 percent stronger, both on the month and on the year. However, a solid gain here failed to prevent another worsening in confidence in the retail sector which is struggling in the face of a 1.6 percent yearly decline in real revenues since the start of 2015.

Today's results should be consistent with annual growth of real household spending close to 1.7 percent this quarter, a slight deceleration versus the first quarter's 1.9 percent rate.

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.