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Do Consumers’ Expenditures Follow Their 

Sentiment?

Arcenis Rojas

Economist

Consumer Expenditure Survey Division

Midwestern Economics Association Conference

April 3, 2016

Evanston, IL
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 Do feelings/attitudes about the 

economy predict expenditures?

 Factors that may distort the 

relationship:

Lag effects

Differences in spending 

across product/service 

categories

Differences in spending 

across demographic groups
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Expenditure and Sentiment Data

Consumer Expenditure Survey (CE)

 U.S. Bureau of Labor Statistics 

(“LabStat” tool)

 Annual aggregates (means) for 

1984 – 2014

 Adjusted for inflation using CPI

 Various categories of expenditures

Index of Consumer Sentiment (ICS)

 Surveys of Consumers by the 

University of Michigan

 Annual figures for 1984 - 2014 

(mean of monthly figures)

 Published data describe sentiment 

about the economy as a whole

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Literature Review

 Consumer Confidence and Consumer Spending (Ludvigson, 

2004)

Used ICS and the BEA’s Personal Consumption Expenditure (PCE) data 

to measure the relationship between consumer sentiment and 

expenditures across categories. 

Considered how well sentiment predicts other economic measures, 

e.g., income growth, stock wealth, etc.

Concluded that the relationship is unclear and proposes that it might 

be nonlinear.

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Literature Review

 Evaluating Threshold Effects in Consumer Sentiment 

(Desroches & Gosselin, 2004)

Explored previous findings saying that consumer sentiment could be 

helpful during periods of economic shock.

Used inflation-adjusted PCE data and the Index of Consumer 

Sentiment.

Concluded that consumer sentiment affects aggregate expenditures 

most in periods of elevated economic uncertainty.

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From the ICS Questionnaire

“Speaking now of the automobile market – do you think the 

next 12 months or so will be a good time or a bad time to buy 

a vehicle, such as a car, pickup, van, or sport utility vehicle?” 

Potential Responses:

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Good Pro-Con Bad Don’t Know
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SENTIMENT AND EXPENDITURES
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Adjustment for Inflation

Consumer Expenditure Survey

 Total expenditures

 Apparel and services

 Education

 Entertainment

 Food

 Food at home

 Food away from home

 Healthcare

 Housing

 Mortgage interest and charges

 New cars and trucks

 Public transportation

 Transportation

Consumer Price Index (Urban)

 All items

 Apparel

 Education

 Recreation

 Food

 Food at home

 Food away from home

 Medical care

 Housing

 Financial services

 New vehicles

 Public transportation

 Transportation

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1984 - 1985

1986 - 1987

1992-1993

1995-1996
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1984 - 1985

1986 - 1987

1992-1993

1995-1996
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Differences in Predictive Power

Strong Predictive Power

 Total expenditures 

 New vehicles 

 Food away from home

 Apparel

 Education

Weak Predictive Power

 Housing

 Food

 Food at home

 Entertainment

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Expenditures by Demographics

 The ICS comes from a random survey, but the differences in 

spending patterns among demographic groups across 

expenditure categories are neither consistent nor necessarily 

random.

 These differences distort the correlation between the ICS and 

consumer expenditures.

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Conclusions

 The predictive power of consumer sentiment is different across 

expenditure categories.

 Demographic factors may distort the relationship between 

consumer sentiment and consumer spending.

 For the categories that consumer sentiment does predict 

expenditures well there do seem to be variable lags across 

categories.

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