Key Findings Details
Expectations and Household Spending
Michael Hurd and Susann Rohwedder
- Basic economic theory suggests that consumption and saving will be affected by expectations, including expectations about unemployment.
- Based on high frequency data from the RAND American Life Panel, we estimated that total spending changed very little in response to changes in the subjective probability of unemployment.
- However, a subaggregate of 20 spending items that can be relatively easily adjusted to changes in circumstances did respond to changes in the subjective probability of unemployment: an increase of 10 percentage points in the probability was associated with a reduction in spending of 1.9%.
- Several categories of spending were particularly responsive: clothing, dining out, entertainment and personal care products.