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Consumer Attitudes, Uncertainty, and Consumer Spending

Author

Listed:
  • Denise Côté
  • Marianne Johnson

Abstract

This study examines the link between consumer expenditures and the Conference Board's Index of Consumer Attitudes, an index highly regarded for some time as a useful leading indicator of consumer expenditures. However, the theory that identifies why it may be useful in an analysis of consumption is less well established. To explore this question, we investigate the complementary value of including the index in a consumption equation. We also take a closer look at the index to establish what information it captures and why it may be useful in explaining household expenditures. The results suggest that the consumer attitudes index supplements traditional economic variables such as real income, wealth, interest rates, and the unemployment rate in equations explaining household expenditures. This finding is quite robust. Furthermore, when tested separately in the equation, the individual questions that contribute most to the index's explanatory power are those on current income as well as the "good time to buy" question that likely reflects consumers' assessments of their economic environment. The results suggest that the attitudes index partially captures information about expected income but that its explanatory power may also come from its measurement of the perception of economic prospects, including some assessment of the probability of a negative outcome and the uncertainty of economic prospects.

Suggested Citation

  • Denise Côté & Marianne Johnson, 1998. "Consumer Attitudes, Uncertainty, and Consumer Spending," Staff Working Papers 98-16, Bank of Canada.
  • Handle: RePEc:bca:bocawp:98-16
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    References listed on IDEAS

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    Cited by:

    1. Lilia Karnizova & Hashmat Khan, 2010. "The Stock Market and the Consumer Confidence Channel in Canada," Carleton Economic Papers 10-08, Carleton University, Department of Economics, revised 26 Aug 2011.
    2. Dudek, Sławomir, 2008. "Consumer Survey Data and short-term forecasting of households consumption expenditures in Poland," MPRA Paper 19818, University Library of Munich, Germany.
    3. Brigitte Desroches & Marc-André Gosselin, 2002. "The Usefulness of Consumer Confidence Indexes in the United States," Staff Working Papers 02-22, Bank of Canada.
    4. Lilia Karnizova & Hashmat Khan, 2015. "The stock market and the consumer confidence channel: evidence from Canada," Empirical Economics, Springer, vol. 49(2), pages 551-573, September.
    5. Vuchelen, Jef, 2004. "Consumer sentiment and macroeconomic forecasts," Journal of Economic Psychology, Elsevier, vol. 25(4), pages 493-506, August.
    6. Lise Pichette, 2000. "Les effets réels du cours des actions sur la consommation," Staff Working Papers 00-21, Bank of Canada.

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    More about this item

    Keywords

    Domestic demand and components; Economic models;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment

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