Can Consumer Attitudes Forecast Household Spending in the United States? Further Evidence from the Michigan Survey of Consumers

Andy C. C. Kwan and John Cotsomitis

Southern Economic Journal, 2004, vol. 71, issue 1, 136-144

Abstract: This article examines the usefulness of various measures of consumer confidence in forecasting household spending in the United States. Using the reduced‐form equation of Carroll, Fuhrer, and Wilcox (American Economic Review 84:1397‐1408, 1994), we find that for the post‐World War II period, the Index of Consumer Expectations is incrementally more informative about household spending than the Index of Consumer Sentiment for all categories of consumption examined. A similar conclusion emerges when Carroll, Fuhrer, and Wilcox's data set is used. Our overall results confirm the view that indices of consumer confidence reflect consumers' perception of future economic conditions. Also, the ability of these confidence indices to predict future consumption growth can be construed as a clear rejection of the random walk hypothesis of Hall (Journal of Political Economy 86:971‐87, 1978).

Date: 2004
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https://doi.org/10.1002/j.2325-8012.2004.tb00629.x

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Persistent link: https://EconPapers.repec.org/RePEc:wly:soecon:v:71:y:2004:i:1:p:136-144

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