Can Consumer Confidence Forecast Household Spending? Evidence from the European Commission Business and Consumer Surveys

Abstract

This paper represents a first formal attempt to examine the ability of consumer confidence to forecast household spending within a multicountry framework. To this end, we use two confidence indices, namely the Consumer Confidence Indicator and the Economic Sentiment Indicator, both of which are derived from the European Commission Business and Consumer Survey. As in previous single‐country investigations, we find that there is much variability in the in‐sample incremental forecasting performance of the confidence indices for the countries canvassed. Further, the results of our out‐of‐sample tests indicate that the confidence indices considered provide limited information about the future path of household spending.