CH: UBS Consumption Index

March 1, 2017 01:00 CST

Actual Previous Revised
Level 1.43 1.50 1.38

The UBS consumption indicator rose for a third consecutive month in January. At 1.43, the headline index was up 0.05 points versus a sharply weaker revised December reading and at its highest level since March 2015.

January's increase mainly reflected stronger consumer sentiment as new car registrations, while still firm, were down 3.7 percent on the year and a modest rise in domestic tourism was less than seen twelve months ago.

The latest reading should be consistent with annual growth of real consumer spending close to 1.5 percent. This would be up sharply from a sub-1 percent outturn in the third quarter when the UBS measure was (again) notably too optimistic. Fourth quarter national accounts data are due tomorrow.

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.