CH: UBS Consumption Index

Wed Dec 30 01:00:00 CST 2015

Actual Previous Revised
Level 1.66 1.60 1.63

The UBS consumption indicator posted its fourth consecutive increase in November. At 1.66 the headline index was up 0.03 points versus a slightly higher revised October mark to register its strongest reading since December 2013.

November's improvement mainly reflected a less gloomy business outlook in the retail sector and an 11 percent yearly rise in new car registrations. However, competitive losses caused by the still strong CHF continue to weigh on the tourism industry.

Today's report should be consistent with annual growth of real consumer spending around 1.7 percent although the indicator has proved consistently too optimistic since the second half of 2014.

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.