Does Consumer Confidence Forecast Household Expenditure? A Sentiment Index Horse Race

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Economic Policy Review

Does Consumer Confidence Forecast Household Expenditure? A Sentiment Index Horse Race

June 1998 Volume 4, Number 2

JEL classification: D1, E21, E27

Authors: Jason Bram and Sydney Ludvigson

This article is the first formal investigation of consumer attitudes that compares the forecasting power of the University of Michigan's Index of Consumer Sentiment and the Conference Board's Consumer Confidence Index. The authors find that measures available from the Conference Board have both economically and statistically significant explanatory power for several categories of consumer spending. By contrast, measures available from the University of Michigan generally exhibit weaker forecasting power for most categories of spending. As part of their analysis, the authors examine the ways in which the surveys underlying these measures differ and test whether certain types of survey questions are particularly important for predicting consumer spending.

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20 pages / 356 kb

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