CH: UBS Consumption Index

Wed Apr 27 01:00:00 CDT 2016

Actual Previous Revised
Level 1.51 1.53 1.45

The UBS consumption indicator gained 0.06 points in March but only after a downwardly revised 1.45 reading in February. Even so, at 1.51 the latest outturn was the highest since November 2014 and, just as significantly, the index has now risen for six consecutive months.

March's improvement was attributable to more optimistic retailer sentiment and the headline measure would have risen more sharply but for a small decline in new vehicle registrations. There were also signs of a pick-up in tourism with the number of overnight hotel stays by Swiss nationals reaching 1.6 million, a 2.7 percent rise versus a year ago.

The March results should be consistent with a doubling in annual growth of real household spending to around 1.5 percent over coming months. However, the recovery forecast by the indicator in 2015 proved overly optimistic and with unemployment apparently on an upward trend, could well be so again this time round.

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.