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Chicago Fed Letter, No. 262, May 2009
Trends in Consumer Sentiment and Spending
Consumer sentiment is one of the many macroeconomic indicators tracked by policymakers. It is seen as an important barometer of economic activities—an indicator of the way people plan to spend their income. During times of economic stress, we pay particularly close attention to how consumers feel about the economy. Such interest appears to be warranted. Research has shown that consumer expectations align more closely with spending during periods of weakness in the economy, and the forecasting contributions (or predictive power) of consumer sentiment appear to be stronger when the economy is weaker. During times of greater economic uncertainty, as consumers perceive greater risk, they tend to accumulate precautionary savings to insure against a sudden loss in income.
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