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 greater economic uncertainty, as consumers perceive greater risk, they tend to accumulate precautionary savings to insure against a sudden loss in income. If higher uncertainty about future income is associated with lower consumption, the magnitude of the shift toward precautionary saving is dependent on the level of current assets compared with expected future labor income. There is increasing evidence that consumer sentiment varies systematically across demographic and socioeconomic groups. An increase in the unemployment rate or a recession period is likely to generate an increase in uncertainty among consumers, even among those who may not themselves be unemployed. Policies that are designed using aggregate data are often aimed at particular demographic and income groups.