CH: UBS Consumption Index

Wed Mar 30 01:00:00 CDT 2016

Actual Previous Revised
Level 1.53 1.66 1.45

The UBS consumption indicator rose from a sharply weaker revised 1.45 in January to 1.53 in March.

The increase was the fifth in a row and puts the index 0.79 points above the post-recession low seen in September 2015. February's gain was largely due to the strength of new vehicle registrations which were up 1.2 percent on the year. However, the buoyancy here has only come at the expense of heavy discounting and this was reflected in a fall in retailer sentiment by 3 points to minus 11.

The latest headline reading should be consistent with annual growth of real consumer spending of about 1.5 percent. However, the indicator has tended to overestimate the strength of household demand for more than a year now so there may well be some downside risk.

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.