Abstract
This study examines whether mood affects the aggregate macroeconomy through its impact on firm-level decisions. Motivated by the psychology literature, we use sky-cloud-cover as a mood proxy and show that mood affects the economic expectations of small business managers. On relatively sunnier days, managers have more optimistic expectations and the component of their expectations related to mood influences hiring and investment decisions. As a result, at the aggregate-level, mood affects U.S. state-level job creation and new business starts, especially during periods of greater economic uncertainty. Collectively, these results suggest that mood-induced economic expectations influence firm-level managerial decisions and state-level economic fluctuations.
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