CH: UBS Consumption Index

October 27, 2016 01:00 CDT

Actual Previous
Level 1.59 1.53

The UBS consumption indicator rose from an unrevised 1.53 in August to 1.59 in September, its highest reading in almost three years and, on paper, indicative of a strong end to the quarter for household spending.

Last month was a particularly strong period for the auto industry with new car registrations recording their second-best September mark since the start of the new millennium. Domestic tourism also seems to be holding up well although the overall market has been hit by declining stays from overseas visitors due to the strength of the local currency.

Retail sales have had a very poor 2016 so far and look unlikely to see much improvement through year-end. However, if the UBS leading indicator proves accurate, growth of total private consumption should accelerate this quarter. Today's reading ought to be consistent with a yearly rise in spending of about 1.6 percent.

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.