Consumer sentiment deteriorated sharply in July according to the new SECO survey. At minus 19 the headline index was some 13 points below its level in April and at its weakest mark since January 2010,
The latest fall reflected a worsening assessment of future economic developments (minus 25 after minus 8) as well expectations for higher unemployment (65 after 51). Households were similarly more cautious about both their future financial situation (minus 4 after 5) and their savings possibilities (18 after 31). As a result, it was hardly surprising that the buying intentions gauge also declined (6 after 15), producing its weakest reading since October last year. However, it was not all bad news as consumer price expectations at least rose (18 after 6), albeit reversing only part of April's 23 point nosedive to a record low.
Overall the July results underline the problems facing the SNB. The central bank may take some heart that perceived deflation risks may not be quite as marked as they were last quarter but in general the survey suggests that households are unlikely to provide much of a boost to real GDP growth over coming months.
SECO Consumer Climate compiles a quarterly survey of consumer attitudes on present economic conditions and expectations of future conditions. The survey covers around 1,200 Swiss households and results are synthesised into a single summary index that attempts to measure consumer sentiment.
The pattern in consumer attitudes and spending is often a major 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. Consumer spending accounts for a major portion of the Swiss economy, so investors want to know what consumers are up to and how they might behave in the near future. The more confident consumers are about the economy and their own personal finances, the more likely they are to spend. An increasing important element of the survey is the question concerning current buying intentions.
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