Good News, Bad News, and Consumer Confidence

Objectives We test for asymmetric reactions of consumer confidence and the news media to changes in economic fundamentals. We examine the relationship between media reporting and consumer confidence. Methods Using data from the University of Michigan Index of Consumer Sentiment and a new data set on media coverage constructed by ourselves, we estimate time series regressions that explain changes in consumer confidence and media coverage of economic news. Results We find evidence of asymmetric reactions by consumers to changes in economic fundamentals; however, we find no evidence of a systematic negativity bias. We also find no evidence of bias in the media. The findings of asymmetric reactions are strengthened when we control for expectations. Conclusion Asymmetric reactions in consumer confidence depend on the nature of the economic fundamental that is changing. Reference points are important in determining consumer reaction, but they do not explain asymmetric responses.