According to the latest SECO survey, consumer sentiment unexpectedly deteriorated last month. At minus 8, the overall climate indicator was 5 points short of its January reading and weaker over the quarter for the first time in a year. However, it remains well above the levels seen over much of the last eighteen months and also a point higher than its long-run average.
April's drop was mainly due to a weakening in economic expectations (5 after 14). Elsewhere the survey found little change in the other questions used to calculate the index, notably anticipated unemployment (flat at 48). Even so, a fall in buying intentions (minus 6 after 4) does not bode well for consumer spending this quarter and the SNB will be less than pleased with a drop in households' inflation expectations (38 after 42) to their lowest level since last July.
In historical terms today's results are not especially weak but are nonetheless surprisingly soft amidst a suite of recent economic news that has pointed to a potentially significant acceleration in Swiss economic growth. In particular, the findings raise a question mark over the outlook for retail sales just when consumer demand seemed to be gaining some real traction.
The State Secretariat for Economic Affairs (SECO) compiles a quarterly survey of consumer attitudes on present and expected economic and financial conditions. The survey covers around 1,200 Swiss households and results are synthesised into a single summary consumer climate index that attempts to measure consumer sentiment.
The pattern in consumer attitudes and spending is often a major 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. Consumer spending accounts for a major portion of the Swiss economy, so investors want to know what consumers are up to and how they might behave in the near future. The more confident consumers are about the economy and their own personal finances, the more likely they are to spend. An increasing important element of the survey is the question concerning current buying intentions.