Spending Less after (Seemingly) Bad News

ABSTRACT Using high‐frequency spending data, we show that household consumption displays excess sensitivity to salient macroeconomic news, even when the news is not real. When the announced local unemployment rate reaches a 12‐month maximum, local news coverage of unemployment increases and local co...

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Bibliographic Details
Published in:The Journal of finance (New York) 2024-08, Vol.79 (4), p.2429-2471
Main Authors: GARMAISE, MARK J., LEVI, YARON, LUSTIG, HANNO
Format: Article
Language:English
Subjects:
Consumer spending
Consumers
Expenditures
Households
Macroeconomics
Media coverage
Unemployment
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Summary:ABSTRACT Using high‐frequency spending data, we show that household consumption displays excess sensitivity to salient macroeconomic news, even when the news is not real. When the announced local unemployment rate reaches a 12‐month maximum, local news coverage of unemployment increases and local consumers reduce their discretionary spending by 1.5% relative to consumers in areas with the same macroeconomic conditions. Low‐income households display greater excess sensitivity to salience. The decrease in spending is not later reversed. Households in treated areas act as if they are more financially constrained than those in untreated areas with the same fundamentals.
ISSN:0022-1082
1540-6261
DOI:10.1111/jofi.13325