CH: UBS Consumption Index

May 31, 2017 01:00 CDT

Actual Previous Revised
Level 1.48 1.50 1.44

The UBS consumption indicator made further ground in April. At 1.48, the headline index was up 0.04 points versus its downwardly revised March print to record its third increase in as many months.

The latest gain was largely attributable to improved sentiment in the retail sector while the main negative impact was made by new car registrations. However, the latter, which dropped 10 percent from a year ago, was probably biased down by Easter effects as April this year had three fewer working days than in 2016. If so, May should see a rebound.

Still, as its stands the latest reading points to annual growth of real household consumption of around the 1.5 percent mark, slightly softer than recorded in the fourth quarter. Actual data will be available in the first look at the January-March national accounts, due for publication 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.