CH: UBS Consumption Index

January 25, 2017 01:00 CST

Actual Previous Revised
Level 1.50 1.43 1.45

The UBS consumption indicator rose 0.05 points from a weaker revised November reading to 1.50 in December. This was the measure's fourth consecutive increase and equals its strongest level since October 2013.

December's improvement was built upon another strong performance by the auto sector where car sales were up 8.2 percent on the year. The number of overnight hotel stays by Swiss residents also expanded (0.9 percent) but in general retail sector sentiment was quite subdued. This may in part reflect below normal snowfalls at the start of the winter holiday season in which case heavier falls more recently might have provided a renewed boost.

The December index should be consistent with annual growth of real household spending of about 1.5 percent, this would be up from just a 0.5 percent rate in the third quarter.

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.