IDEAS home Printed from https://ideas.repec.org/p/rpi/rpiwpe/0904.html
   My bibliography  Save this paper

Does Consumer Confidence, As Measured By The Conference Board’s Index Of Consumer Confidence, Affect Demand For Consumer And Investment Goods(Or Just Proxy For Things That Do)?

Author

Listed:
  • John J. Heim

    () (Department of Economics, Rensselaer Polytechnic Institute, Troy, NY 12180-3590, USA)

Abstract

Declining consumer confidence is cited as a cause of declining consumer demand. If so, it may also affect business spending on investment goods, as businesses adjust production in response to changes in consumer confidence that will affect demand. This paper examines effects on consumption and investment of changes in the conference Board’s Index of Consumer Confidence (ICC), and its subcomponent Index of Consumer Expectations (ICE). Using simple two variable regressions prior year values of ICS were found significantly related to current year consumption (but not vice versa). Using more sophisticated models, in which other variables that influence consumer demand are controlled for, the ICC, again lagged one period, was found also found systematically related to total consumer spending and spending on each of its parts: durable and nondurable goods, and services. Control variables included income, wealth, interest rates, consumer credit availability and exchange rates. No ICE relationship with any kind of consumer demand was found. With controls for other factors affecting investment, including the accelerator, depreciation allowances, interest rates, profits and stock market levels, the ICC was not found related to any type of investment. However but the 3 year average value of ICE (current and past two years) was found related to both inventory investment and housing investment. The magnitude of the impact of 2008 changes in ICC was found to be very large, capable of explaining the entirety of the estimated decline in GDP during 2009.

Suggested Citation

  • John J. Heim, 2009. "Does Consumer Confidence, As Measured By The Conference Board’s Index Of Consumer Confidence, Affect Demand For Consumer And Investment Goods(Or Just Proxy For Things That Do)?," Rensselaer Working Papers in Economics 0904, Rensselaer Polytechnic Institute, Department of Economics.
  • Handle: RePEc:rpi:rpiwpe:0904
    as

    Download full text from publisher

    File URL: http://www.economics.rpi.edu/workingpapers/rpi0904.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. 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.
    2. John J. Heim, 2009. "Demand For Durable Goods, Nondurable Goods And Services," Rensselaer Working Papers in Economics 0906, Rensselaer Polytechnic Institute, Department of Economics.
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rpi:rpiwpe:0904. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shawn Kantor). General contact details of provider: http://edirc.repec.org/data/derpius.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.