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Consumer Attitudes, Uncertainty, and Consumer Spending

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  • Côté, Denise
  • Johnson, Marianne

Abstract

This study examines the link between consumer expenditures and the Conference Board's Index of Consumer Attitudes, an index highly regarded for some time as a useful leading indicator of consumer expenditures. However, the theory that identifies why it may be useful in an analysis of consumption is less well established. To explore this question, we investigate the complementary value of including the index in a consumption equation. We also take a closer look at the index to establish what information it captures and why it may be useful in explaining household expenditures. The results suggest that the consumer attitudes index supplements traditional economic variables such as real income, wealth, interest rates, and the unemployment rate in equations explaining household expenditures. This finding is quite robust. Furthermore, when tested separately in the equation, the individual questions that contribute most to the index's explanatory power are those on current income as well as the "good time to buy" question that likely reflects consumers' assessments of their economic environment. The results suggest that the attitudes index partially captures information about expected income but that its explanatory power may also come from its measurement of the perception of economic prospects, including some assessment of the probability of a negative outcome and the uncertainty of economic prospects.

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Bibliographic Info

Paper provided by Bank of Canada in its series Working Papers with number 98-16.

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Length: 39 pages
Date of creation: 1998
Date of revision:
Handle: RePEc:bca:bocawp:98-16

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Keywords: Domestic demand and components; Economic models;

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References

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  1. Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-47, February.
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  13. Smith, R Todd, 1996. "Cyclical Uncertainty, Precautionary Saving and Economic Growth," Economica, London School of Economics and Political Science, vol. 63(251), pages 477-94, August.
  14. 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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  18. repec:fth:eeccco:116 is not listed on IDEAS
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Cited by:
  1. Brigitte Desroches & Marc-André Gosselin, 2002. "The Usefulness of Consumer Confidence Indexes in the United States," Working Papers 02-22, Bank of Canada.

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