CH: UBS Consumption Index

June 28, 2017 01:00 CDT

Actual Previous Revised
Level 1.39 1.48 1.34

The UBS consumption indicator signalled a slight pick-up in consumer spending in mid-quarter but only after a weaker revised performance in April. At 1.39, the headline index was up 0.05 points versus its new April level. This was the third consecutive advance and the highest reading so far in 2017.

New car registrations were 8 percent firmer on the year and hotel overnight stays by Swiss residents were 10 percent to the good. However, both benefitted from special factors that weighed on April.

The latest reading suggests that growth of private consumption, which was a sluggish 0.1 percent quarterly rate at start of the year, remains below its long-run average. If so, SNB policy is all the more likely to remain highly accommodative over the foreseeable future.

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.