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Does consumer confidence forecast household expenditure?: A sentiment index horse race

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Abstract

This paper investigates the forecasting power of consumer sentiment for household expenditure. We compare the predictive power of two measures of consumer attitudes, and then further compare each survey's expectations component with one another, and with the broader sentiment measures. The results indicate that lagged values of the Conference Board's overall confidence and expectations measures have stronger incremental power for more categories of the growth in consumption expenditure than do measures available from the University of Michigan, though the latter is correlated with future expenditures on automobiles even after economic fundamentals are controlled for. The paper also discusses structural differences between the two surveys and suggests how these differences might be related to the discrepancy in forecasting power.

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  • Jason Bram & Sydney C. Ludvigson, 1997. "Does consumer confidence forecast household expenditure?: A sentiment index horse race," Research Paper 9708, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednrp:9708
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    1. Matsusaka, John G & Sbordone, Argia M, 1995. "Consumer Confidence and Economic Fluctuations," Economic Inquiry, Western Economic Association International, vol. 33(2), pages 296-318, April.
    2. Eric M. Leeper, 1992. "Consumer attitudes: king for a day," Economic Review, Federal Reserve Bank of Atlanta, issue Jul, pages 1-15.
    3. 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.
    4. Wilcox, David W, 1992. "The Construction of U.S. Consumption Data: Some Facts and Their Implications for Empirical Work," American Economic Review, American Economic Association, vol. 82(4), pages 922-941, September.
    5. Sydney C. Ludvigson, 1996. "Consumer sentiment and household expenditure: reevaluating the forecasting equations," Research Paper 9636, Federal Reserve Bank of New York.
    6. Mankiw, N. Gregory, 1982. "Hall's consumption hypothesis and durable goods," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 417-425.
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