Determinants of Consumer Sentiment: Evidence from Household Survey Data

Kajal Lahiri and Yongchen Zhao

Discussion Papers from University at Albany, SUNY, Department of Economics

Abstract: We study the information content of the five components of the University of Michigan¡¯s Index of Consumer Sentiment and identify the main determinants of these measures, using semiparametric ordered choice models and household data from the Surveys of Consumers from January 1978 to September 2012. Our findings suggest that consumers¡¯ own perceptions and expectations, as measured by other survey questions in the Surveys of Consumers, are the most important determinants of the sentiment index. After this set of factors is controlled for, consumers¡¯ demographic characteristics, aggregate macroeconomic variables, and professional forecasts account for little in addition. We also find that the sentiment components about the overall economic conditions are less sensitive to consumers¡¯ own views and characteristics than the components about consumers¡¯ household financial situations. These findings could motivate the use of consumer sentiment measures in a variety of applications, including forecasting consumption expenditures.

Date: 2013
New Economics Papers: this item is included in nep-dcm
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