The FINANCIAL -- With a drop of 0.32 points in May, the UBS consumption indicator relinquished a significant proportion of the strong rise seen in the previous two months and sank to 1.05 points.

The decline in business activity in the retail sector was primarily responsible for the fall. New car registrations also showed noticeable flattening. According to UBS Bank, This is not surprising, since on a seasonally adjusted basis, the number of monthly registrations at over 28,000 has for several months been above the last high seen in 1999.

The latest SECO estimates paint a surprisingly strong picture of the Swiss economy: Adjusted for inflation, gross domestic product (GDP) increased 2.0% in the first quarter of 2012 compared with the previous year.

Consumption was the economy's main pillar, contributing three-quarters of GDP growth. With an increase of 1.8%, private consumption developed significantly better in the first quarter than the value implied by the UBS consumption indicator. The strong franc, falling consumer prices and high immigration can lead to the UBS consumption indicator underestimating actual consumption development.

UBS has recently raised its forecasts for Swiss economic growth and now expects a GDP growth of 1.3% (previously 0.9%) and growth in private consumption of 1.9% (previously 1.1%) this year. The domestic economy, in particular consumption, should continue to grow at an above average rate and partially compensate for ailing exports. The decline in the UBS consumption indicator in May does not alter our assessment of the Swiss economy.

The UBS Consumption Indicator signals private consumption trends in Switzerland with a lead time of about three months on the official figures. At roughly 60%, private consumption is by far the most important component of Swiss GDP. UBS calculates this leading indicator from five 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, and credit card transactions made via UBS at points of sale in Switzerland. With the exception of the consumer sentiment index, all of this data is available monthly.

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