SWISS CONSUMER SENTIMENT IMPROVES MARKEDLY.

Drama and Switzerland are two notions that seem to have little to do with one another-especially in economic affairs. But even a cursory glance at the graph above confirms a dramatic turnaround in consumer sentiment in Switzerland. Add to the impact of the graph the fact that one must go back to the third quarter 2001 to find an index number in the positive range, and the improvement shown above really stands out.

All of the overall consumer sentiment index readings from the fourth quarter 2001 through the fourth quarter 2005 are negative.

Switzerland's consumer sentiment index is an average of nine sub indexes. For the first three quarters 2006, only three of the sub indexes were negative. One sub index that does not need much of an explanation is concerned consumer views of their own "financial situation in the past."

The two other negative sub indexes open a window into Swiss consumer thinking. Very often when economies turn around we see an almost immediate change in consumer feelings in regard to durables purchases with the durables sentiment sub index beginning to register positive. Not so with the cautious Swiss. During the third quarter 2006 survey, when asked whether or not this was the right time to purchase durables, the sub index declined to negative 15 from negative 12 in the second quarter 2006, and from negative 11 in the first quarter 2006.

Interestingly, the sub index related to "saving/borrowing" also declined. It fell to 40 in the third quarter 2006 from 41 in the second quarter 2006 and from 48 in the first quarter 2006. Also revealing of Swiss consumers is the fact that the 'Is this the right time for saving or borrowing' question is only one of the three indexes that were consistently positive all the way back to the final quarter 1996, which is where this series stops. The statistical series is provided by the Swiss National Bank (SNB).

The other two 10-year positive indexes were past and future feelings about price developments-inflation, in other words. A quick glance at International Monetary Fund (IMF) statistics for Switzerland for the decade from 1996 through 2005 reveals that only three times did the rate of inflation increase more than one percent. Inflation in Switzerland has been under control for some time, so naturally consumers would have positive feelings about price developments looking backwards and forward.

For a rich, developed country the average unemployment rate for the decade from 1996 through 2005 of 3.0 percent can only be described as impressive-except to the country's consumers. A casual pairing of IMF unemployment statistics with the "job security" sub index leaves one with the impression that anytime unemployment crept above 2.0 percent, Swiss consumers responded with sentiment numbers in negative three digits. The highest was in the final quarter 1996 at negative 145.

Current readings of the "job security" index were negative as well-but improving markedly. The first quarter 2006 reading was negative 88, second quarter 2006 was negative 72, and the third quarter was negative 47.

A report on the status of the Swiss economy dated September 12, 2006 by the USB bank said that while consumer spending was "solid" equipment investments were mainly responsible for year-on-year GDP growth of 3.2 percent.

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