October's KOF leading economic index posted its largest monthly rise since May last year. At 104.7, the headline measure gained more than 3 points versus its upwardly revised September outturn to stand at its highest level since January 2014. The October reading was comfortably above its long-run average (100) and suggests a near-term acceleration in Swiss economic output.
Hospitality services and manufacturing provided the main positive impulses this month while the only negative contribution came from the financial sector. For manufacturing, improved sentiment was fashioned by better competitiveness and a more favourable assessment of the overall business climate. This suggests that adjustment to the 2015 surge in the CHF is now largely over.
Today's results should make for upside risk to the October PMI.
The KOF Economic Indicator is a composite leading indicator that aims to identify shifts in the Swiss business cycle around three months ahead of the actual event and, until the start of 2014, was based on twenty-five different economic indicators. The old version of the KOF Economic Indicator used the previous year's GDP growth rate published by the Swiss State Secretariat for Economic Affairs (SECO) as a yardstick. The revised measure still incorporates SECO data; however, KOF has changed over to month-on-month changes in GDP which are generated via statistical methods. This reference series is not about exact GDP figures but about the direction and strength of the economic trend. The new objective of the Barometer is the same as the old objective: achieving maximum possible accuracy in predicting the Swiss business cycle.
The indicator measures overall economic activity through a qualitative business survey about developments in the recent past, the current situation and expectations for the next three to six months. Getting an accurate handle on where the economy is headed is inevitably a vital element in all investment decisions and the new measure uses some 219 variables in order to do just that. The set of variables will be reviewed every autumn.
Survey questions relate to production, orders and stocks of finished goods. The Swiss Institute for Business Cycle Research (KOF) publishes this indicator monthly.