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Is the Consumer Confidence Index a Sound Predictor of the Private Demand in the United States?

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  • LORÍA, EDUARDO

    ()
    (School of Economics, National Autonomous University of Mexico (UNAM). Edificio Anexo, Tercer Piso, Club 305.Circuito Interior S/N, Ciudad Universitaria Del. Coyoacán, México, D.F. 04510.Tel.: +52 (55) 5622 2142.)

  • BRITO, L.

    ()
    (Journal CIENCIA ergo sum, Autonomous University of the State of Mexico (UAEM). Av. V. Gómez Farías Nº. 200-2 Ote. Toluca, México, 50000. Tel.&Fax: +52 (722) 2137529.)

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    Abstract

    The United States (U.S.) Consumer Confidence Index (CCI) has been widely and unambiguously regarded as a good ‘predictor’ of the U.S.’s private investment and consumption. In order to demonstrate such with statistical rigor, co-integration and Granger causality tests were applied for 1978:Q1-2003:Q1. Two crucial results were obtained: a) co-integration was not found between CCI and investment and consumption, and b) CCI does not determine –in the Granger sense– either consumption or private investment. Conversely, we found causality from these two variables over CCI. El Índice de Confianza del Consumidor (CCI) de los Estados Unidos ha sido ampliamente, y sin ambigüedades, considerado como un buen pronosticador de la inversión y del consumo privados en ese país. Para comprobar esta afirmación, en este artículo se aplicaron con todo rigor estadístico las pruebas de cointegración y causalidad de Granger (1978:Q1-2003:Q1). Fueron obtenidos dos resultados cruciales: a) no se encontró cointegración entre CCI y el consumo y la inversión privados, y b) CCI no es causado –en el sentido de Granger– ni por el consumo ni por la inversión. Contrariamente, encontramos causalidad de estas dos variables sobre CCI.

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    Bibliographic Info

    Article provided by Estudios de Economía Aplicada in its journal Estudios de Economía Aplicada.

    Volume (Year): 22 (2004)
    Issue (Month): (Diciembre)
    Pages: 1-15

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    Handle: RePEc:lrk:eeaart:22_3_17

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    Related research

    Keywords: Leading indicator; consumer confidence index; Granger causality test; unit root; structural change; co-integration.;

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    References

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    1. Perron, Pierre, 1997. "Further evidence on breaking trend functions in macroeconomic variables," Journal of Econometrics, Elsevier, vol. 80(2), pages 355-385, October.
    2. Robert H. McGuckin & Ataman Ozyildirim, 2004. "Real-Time Tests of the Leading Economic Index: Do Changes in the Index Composition Matter?," Journal of Business Cycle Measurement and Analysis, OECD Publishing,CIRET, vol. 2004(2), pages 171-191.
    3. Brigitte Desroches & Marc-André Gosselin, 2002. "The Usefulness of Consumer Confidence Indexes in the United States," Working Papers 02-22, Bank of Canada.
    4. E. Philip Howrey, 2001. "The Predictive Power of the Index of Consumer Sentiment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(1), pages 175-216.
    5. Jason Bram & Sydney Ludvigson, 1998. "Does consumer confidence forecast household expenditure? a sentiment index horse race," Economic Policy Review, Federal Reserve Bank of New York, issue Jun, pages 59-78.
    6. Batchelor, Roy & Dua, Pami, 1998. "Improving macro-economic forecasts: The role of consumer confidence," International Journal of Forecasting, Elsevier, vol. 14(1), pages 71-81, March.
    7. Maximo Camacho & Gabriel Perez-Quiros, 2000. "This Is What The Leading Indicators Lead," Computing in Economics and Finance 2000 132, Society for Computational Economics.
    8. Carroll, Christopher D & Fuhrer, Jeffrey C & Wilcox, David W, 1994. "Does Consumer Sentiment Forecast Household Spending? If So, Why?," American Economic Review, American Economic Association, vol. 84(5), pages 1397-1408, December.
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    Cited by:
    1. Dudek, Sławomir, 2008. "Consumer Survey Data and short-term forecasting of households consumption expenditures in Poland," MPRA Paper 19818, University Library of Munich, Germany.
    2. Bahram Adrangi & Joseph Macri, 2011. "Consumer Confidence and Aggregate Consumption Expenditures in the United States," Review of Economics & Finance, Better Advances Press, Canada, vol. 1, pages 1-18, February.

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