CH: UBS Consumption Index

Tue Oct 27 02:00:00 CDT 2015

Actual Previous Revised
Level 1.65 1.63 1.64

The consumption indicator was broadly flat in September. At 1.65, the headline index was just 0.01 points above its minimally stronger revised August reading and indicative of a modest acceleration in real household consumption through year-end.

The latest marginal advance was mainly due to an increase in auto sales and masked what remains a generally pessimistic mood in the retail sector. Over the first three quarters of the year, new auto registrations were up some 9 percent versus the same period in 2014 with falling prices and historically low interest rates almost certainly a major factor.

The latest UBS reading should be consistent with annual growth of real consumption of around the 1.7 percent mark, an improvement on recent months but still sluggish enough to leave open the possibility of additional SNB easing.

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.