CH: UBS Consumption Index

September 28, 2016 01:00 CDT

Actual Previous Revised
Level 1.53 1.32 1.45

The UBS consumption indicator was surprisingly strong in August. Following a sharply upwardly revised 1.45 in July, the index climbed a further 0.08 points to 1.53, its fifth consecutive rise and its highest reading since October 2013.

The mid-quarter improvement was largely attributable to stronger tourism and the number of overnight hotel stays by Swiss residents was up 1.6 percent on the year. Auto sales also remained firm. However, with recent signs that the labour market is struggling to create enough jobs, August's headline gain could prove short-lived. The economic outlook for the second half of the year is highly uncertain and recent PMI surveys have suggested that firms are wary about adding to headcount.

The current level of the indicator should be consistent with annual growth of real household spending around the 1.5 percent mark but, in practice, this is probably subject to downside risk.

The UBS Consumption Indicator signals private consumption trends in Switzerland with a lead time of one to three months on the official figures. The index is derived from six consumer-related parameters: new car registrations, business activity in the retail sector, the number of domestic overnight hotel stays by Swiss residents, the consumer sentiment index, employment figures and credit card transactions made via UBS at points of sale in Switzerland. With the exception of the consumer sentiment index and employment figures, all of this data is available monthly.

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.