Consumer sentiment deteriorated in August. At minus 35, the unadjusted headline index was 3 points below its July outturn and 2 points short of the market consensus. However, it was 6 points stronger than a year ago and still well above its minus 40 long-run average.

The monthly fall was largely due to a worse economic outlook (minus 22 after minus 16) and weaker spending intentions (minus 32 after minus 30). However, job security improved slightly (minus 22 after minus 23) and 1-year ahead inflation expectations (97) held steady and so remained some 6 points below their historic norm.

Despite the setback, today's report leaves a fairly flat profile to consumer confidence indeed, the third quarter will probably be a little more robust than the second and well above its level a year ago. Even so, the outlook for household spending would seem subdued and there is nothing here to dissuade the SNB from cutting interest rates again later this month. The August data put the Swiss RPI at 14 and the RPI-P at 25, both gauges showing economic activity in general still running somewhat ahead of market forecasts.

Confidence is seen little changed at minus 33 after July's minus 32.

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.