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UBS consumption indicator falls significantly in July
In the wake of June's temporary high, the UBS consumption indicator has fallen significantly. The dip by almost 0.4 points to 1.85 is the largest correction seen during a single month for just under a year. At its current level, the indicator signals that Swiss consumer spending remains healthy, but the outlook is looking increasingly gloomy.
The monthly UBS consumption indicator fell significantly in July to 1.85. In June, it was at 2.22 and in May at 1.95. Despite the most recent decline, the UBS consumption indicator has been outperforming the long-term average of 1.50 for more than two years. Nevertheless, there has been a marked downward trend since February, the value for July having fallen below the average for the past 12 months.
The UBS consumption indicator is calculated from five sub-indicators: new car sales, business activity in the retail sector, the number of domestic hotel overnight stays by Swiss nationals, the consumer sentiment index, and credit card transactions via UBS at points of sale in Switzerland. The rapid downturn in July is in particular attributable to the significant deterioration in consumer sentiment, as well as to weaker business activity in the retail sector. During the previous month, this had benefited from the European Football Championship, posting a corresponding sharp rise. Adjusted to take this special effect into account, the business situation in the retail sector did indeed deteriorate, but appears to remain solid overall. The other indicators all contributed positively to the calculation. The UBS consumption indicator was bolstered in particular by the number of new car registrations, which increased by 4.8% year on year. The increase in the number of hotel overnight stays by Swiss nationals, driven mainly by seasonal factors, also had a positive effect.
At its current level, the UBS consumption indicator signals that Swiss consumer spending remains healthy, though the outlook is deteriorating. The situation on the labor market is still good, which is likely to have a positive impact on expected household income, giving cause for continued optimism. However, the recent hike in inflation coupled with the economic downturn tarnished this outlook. Overall, UBS thus expects real private consumption to grow 1.8% in 2008.
UBS Consumption Indicator and private consumption in Switzerland
(Private consumption: year-on-year change in %, UBS Consumption Indicator: index level)
Calculation of the UBS Consumption Indicator:
The UBS Consumption Indicator signals private consumption trends in Switzerland with a lead of about three months on the official figures. At 61%, private consumption is by far the most important component of Swiss GDP. UBS calculates this leading indicator from five consumer-related parameters: new car sales, the business situation in the retail trade, the number of overnight hotel stays by Swiss nationals in Switzerland, the consumer sentiment index and credit card transactions made via UBS at points of sale in Switzerland. With the exception of the consumer sentiment index, all of these data are available monthly.
Daniel Kalt, Head of Swiss Economic Research
Tel. +41-44-234 25 60
Felix Brill, Economic & Swiss Research
Tel. +41-44-234 35 54
UBS publications and forecasts for Switzerland: www.ubs.com/economicresearch