Firm Uncertainty and Household Spending

Abstract

By mapping households to US employers traded in the stock market and using daily spending data, we provide novel evidence of household spending response to employer-specific forward-looking volatility shocks. A 10 percent change in firm uncertainty leads households to change their average monthly spending over the next 6-months by -0.95 percent. This negative second-moment firm uncertainty effect is larger than the positive first-moment effect of firm stock returns. The employer-specific effect is robust to both industry- and aggregate-level volatility effects. The intensity of the response increases in the forecast horizon window, lasting nine months. The response is pronounced for low-liquidity households, and for households that work at firms that recently had low employee growth, high CAPM Beta, and low Tobin's Q. Lastly, household spending shows an asymmetric response to `good' and `bad' uncertainty.

Keywords: Uncertainty, Households, Spending, Savings, Volatility

JEL Classification: D10, D80, E03, E21, E32, E44, G02, G30