Consumer Sentiment and Spending on Durable Goods

Note: This paper was written for the most part while I was at the Board of Governors of the Federal Reserve System. I thank Dennis W. Carlton, Nicholas A. Kiefer, George R. Neumann, Susan W. Burch, the staff of the National Income Section, and members of the Brookings panel for their helpful comments. I also benefited from Elizabeth Li's research assistance and from the discussion at seminars given at the Federal Reserve Board and the Econometrics Workshop of the University of Chicago. The views expressed here are solely those of the author and do not indicate concurrence by the Federal Reserve System. 1. For example, Eva Mueller, "Ten Years of Consumer Attitude Surveys: Their Forecasting Record," Journal of the American Statistical Association, vol. 58 (December 1963), pp. 899-917; Saul H. Hymans, "Consumer Durable Spending: Explanation and Prediction," BPEA, 2:1970, pp. 173-99; F. Thomas Juster and Paul Wachtel, "Inflation and the Consumer," BPEA, 1:1972, pp. 71-114; F. Thomas Juster and Paul Wachtel, "Anticipatory and Objective Models of Durable Goods Demand," American Economic Review, vol. 62 (September 1972), pp. 564-79. 2. Economists at the Survey Research Center have argued that consumer sentiment should be especially critical to decisions to purchase consumer durables because these items are "discretionary"--that is, their purchase can easily be postponed. See George Katona, The Powerful Consumer: Psychological Studies of the American Economy (McGraw-Hill, 1960), and Mueller, "Ten Years," for examples. One problem with this viewpoint is the difficulty of defining rigorously the degree of an item's postponability.