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Key Findings Details

Expectations and Household Spending
Michael Hurd and Susann Rohwedder
WP 2013-300

  • 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.