Does customer satisfaction have directional predictability for U.S. discretionary spending?

Hamid Baghestani and Paul Williams

Applied Economics, 2017, vol. 49, issue 54, 5504-5511

Abstract: Research indicates that past growth in customer satisfaction is an important factor in explaining the in-sample behaviour of growth in discretionary spending. Motivated by such evidence, we take an out-of-sample forecasting approach to examine whether customer satisfaction has directional predictability for two types of discretionary spending. These include spending on motor vehicles and spending on recreation services, which display frequent negative growth for the period 1995–2015. Our results indicate that customer satisfaction accurately predicts the direction of change in both types of spending under symmetric loss. To augment, we further show that the widely reported consumer sentiment has no directional predictability for either types of discretionary spending.

Date: 2017
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DOI: 10.1080/00036846.2017.1311002

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