CH: UBS Consumption Index

November 30, 2016 01:00 CST

Actual Previous Revised
Level 1.49 1.59 1.47

The UBS consumption indicator rose from a significantly weaker revised September level (1.47) to 1.49 in October.

Although only slight, October's gain was enough to put the index at its highest level since November 2013. Once again, the improvement was led by tourism and overnight hotel stays by Swiss nationals were up 1 percent on the year, their third consecutive increase. New vehicle registrations declined 7.3 percent but also still show a firm recent trend. Rather, the main worry is the retail sector where sales were down at a 2.7 percent annual rate and hopes of a good Christmas period are now fading.

Today's reading should be consistent with yearly growth in real private consumption of about 1.5 percent. This would be a marked increase versus the 1.0 percent rate registered in the second quarter. Third quarter household spending figures will be released as part of the third quarter national accounts on Friday.

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.