Why Does Consumer Sentiment Predict Household Spending?

FRB Richmond Economic Quarterly, Vol. 89, No. 4, Fall 2003, pp. 51-67

17 Pages Posted: 5 Dec 2012

See all articles by Yash P. Mehra

Yash P. Mehra

Federal Reserve Banks - Federal Reserve Bank of Richmond

Elliot Martin

Independent

Date Written: 2003

Abstract

Consumer sentiment may predict future household spending, either because sentiment is an independent causal force or because it foreshadows current economic conditions. The empirical evidence we present favors the second interpretation. The evidence in previous research that favors the first interpretation is not robust because the analysis failed to control for the possible influences of expected changes in income and interest rates on consumer spending. Consumer sentiment foreshadows current expectations about the economy as well as about interest rates, suggesting that it is useful as a barometer of the near-term outlook for spending.

Suggested Citation

Mehra, Yash P. and Martin, Elliot, Why Does Consumer Sentiment Predict Household Spending? (2003). FRB Richmond Economic Quarterly, Vol. 89, No. 4, Fall 2003, pp. 51-67. Available at SSRN: https://ssrn.com/abstract=2184918

Yash P. Mehra (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States
804-697-8247 (Phone)
804-697-8255 (Fax)

Elliot Martin

Independent

No Address Available

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