Executive Summary
Of all economic activities, consumer spending is by far the most dominant contributor to U.S. economic growth. It accounts for approximately two-thirds of the gross domestic product. In all industrialized countries, consumer spending represents a large part of the economy, but U.S. economic growth is more dependent on consumer spending than any other country in the world. If consumer spending slows, the economy slows; if consumer spending drops even marginally, the economy is likely to contract.
This is why the ability to predict consumer spending is of immense importance—not only at the macro level but for corporate resource allocation at the micro level as well. For managers, whether they are in production, finance, or marketing, the implications of consumer spending levels also affect the availability and magnitude of the resources themselves. Marketing, in particular, takes on a very different role depending on whether the company faces a growth economy or a recession.
In view of its pivotal importance at so many levels of the economy, it would be logical to assume that a great deal of research has been devoted to the prediction of aggregate consumer spending. However, this is not the case. Marketing has been more concerned with estimating consumer demand for individual products, and standard economic theory holds that prediction of consumer spending would be futile. According to Milton Friedman’s permanent income hypothesis, long the dominant consumption theory in economics, spending is determined by household wealth, and because equity markets are assumed to be efficient, wealth cannot be predicted. Consequently, spending cannot be predicted either. This does not mean that there have not been attempts to predict spending anyway, but as predicted by the theory, the empirical results have not been encouraging.
However, the results from this study show that a good amount of discretionary consumer spending, though not all, is indeed predictable from a new variable: Gross consumption utility, measured as the satisfaction of the consumer, appears to be a major predictor. Its impact is moderated by a budget constraint, measured by household debt service ratio. Using no additional variables, the results indicate that slightly more than 23% of future consumer spending can be accounted for—more than other (often more elaborate empirical models) have found and much more than expected by conventional theory. The results suggest that there is reason to be more optimistic about the ability to forecast economic ups and downs through consumer spending and to adjust economic policy and corporate budgets accordingly.
Biography
Claes Fornell is Donald C. Cook Professor of Business Administration and the Director of the National Quality Research Center (NQRC) in the Ross School of Business at the University of Michigan. He is responsible for the development and management of the American Customer Satisfaction Index. His primary area of research deals with consumer utility, measured as experience utility or satisfaction, economic growth, the relationship between stock prices, and consumer utility and economic growth. Claes Fornell has written more than 70 articles and several books. His most recent book—The Satisfied Customer: Winners and Losers in the Battle for Buyer Preference (Palgrave Macmillan, 2007)—was recently released in paperback and has been translated into Italian and Spanish. Claes Fornell has served on the editorial board of all the major academic journals in the field and regularly appears in both broadcast and print media as an expert on customer satisfaction and its implications on corporate performance and financial markets. He is one of the most cited scholars in Marketing Science over the past 25 years.
Roland T. Rust is Distinguished University Professor and David Bruce Smith Chair in Marketing at the Robert H. Smith School of Business at the University of Maryland, where he is Chair of the Marketing Department and founder and Executive Director of two research centers: the Center for Excellence in Service and the Center for Complexity in Business. He has won lifetime achievement awards for marketing research, advertising, service marketing, and statistics; 11 best-article awards; and the Berry/AMA Book Prize for the best book in marketing. He is the founder and Chair of the American Marketing Association’s annual Frontiers in Service Conference and was founding editor of the Journal of Service Research. He is an Academic Trustee of the Marketing Science Institute and serves on the Executive Committee of the European Marketing Academy. He is the immediate past editor of Journal of Marketing and serves as an associate editor for Marketing Science and Journal of Marketing Research.
Marnik G. Dekimpe (PhD, University of California, Los Angeles) is a research professor at Tilburg University and Professor of Marketing at the Catholic University Leuven. His work has been published in Marketing Science, Management Science, Journal of Marketing Research, Journal of Marketing, and Journal of Econometrics, among others. He has won best-paper awards at Marketing Science (1995, 2001), Journal of Marketing Research (1999), International Journal of Research in Marketing (1997, 2001, 2002), and Technological Forecasting and Social Change (2000). He is an associate editor with both Journal of Marketing Research and International Journal of Research in Marketing; he is an academic trustee with the Marketing Science Institute; and he serves on the editorial board of Marketing Science, Journal of Marketing, Journal of the Academy of Marketing Science, Marketing Letters, and Journal of Interactive Marketing. In 2007, he won the Best Reviewer Award at Journal of Marketing.
Journal of Marketing Research, Volume 47, Number 1, February 2010
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