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Spending Less After (Seemingly) Bad News

Author

Listed:
  • Garmaise, Mark J.

    (UCLA Anderson)

  • Levi, Yaron

    (USC Marshall)

  • Lustig, Hanno

    (Stanford GSB)

Abstract

We show that household consumption displays excess sensitivity to salient macro-economic news. When the announced local unemployment rate reaches a 12-month maximum, local consumers in that area reduce discretionary spending by 2% relative to consumers in areas with the same macro-economic fundamentals. The consumption of low-income households displays greater excess sensitivity to salience. The decrease in spending is not reversed in subsequent months; instead, negative news persistently reduces future spending for two to four months. Announcements of 12-month unemployment maximums also lead consumers to reduce their credit card repayments by 3.6%.

Suggested Citation

  • Garmaise, Mark J. & Levi, Yaron & Lustig, Hanno, 2019. "Spending Less After (Seemingly) Bad News," Research Papers 3830, Stanford University, Graduate School of Business.
    • Handle: RePEc:ecl:stabus:3830
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    File URL: https://www.gsb.stanford.edu/gsb-cmis/gsb-cmis-download-auth/488981
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