Can Consumer Confidence Provide Independent Information on Consumption Spending? Evidence from Euro Area Countries
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This paper investigates how well consumer confidence predicts households future consumption expenditure.
Author: Antonello D’Agostino | Senior Economist in the Economics and Policy Strategy department
with Caterina Mendicino | European Central Bank
Abstract
This paper investigates how well consumer confidence predicts households future consumption expenditure. Our findings document considerable variety in the degree to which confidence measures accurately forecast consumption across selected euro area countries and periods. First, we explore the leading role of consumer confidence in forecasting consumption growth. We find that the consumer confidence index improves forecasts of household consumption expenditure appreciably during times of financial distress, especially in Italy and Portugal. Further, we show that the financial sub-index of consumer confidence provides more nuanced information than the aggregate index. Indeed, over the past few years, expectations about future personal financial situations proved particularly helpful in forecasting total consumption expenditure in France, Italy and Portugal. For Germany, in contrast, no measures of confidence provide information beyond what is supplied by other economic indicators for forecasting household consumption.
Finally, we advance some evidence to support the idea that changes in consumer confidence are an independent driver of economic fluctuations.
Disclaimer: This Working Paper should not be reported as representing the views of the ESM. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the ESM or ESM policy. No responsibility or liability is accepted by the ESM in relation to the accuracy or completeness of the information, including any data sets, presented in this Working Paper.
JEL codes: C32, E24, E32