This paper investigates the sources and methods used to construct the aggregate data on consumer spending in the United States, searching especially for imperfections that may have implications for the outcome of empirical work. The paper identifies two such imperfections: sampling error and compositional error. It then presents several examples intended to illustrate that these imperfections may be empirically important and that appropriate remedies for them often can be devised. The paper concludes by suggesting some guidelines for empirical practice.

This paper analyzes dynamics of production and inventories at the General Motors Corporation during the 1920's and 1930's. We begin by examining anecdotal evidence on the nature of the production control system in force during that period. Motivated by that evidence, we then extend the conventional linear-quadratic model of production behavior to take account of annual shutdown. Finally, we apply the modified model to newly available data on monthly unit production, sales, and inventories during 1924-1940. GM appears to have been aiming to maintain a targeted level of inventory relative to expected sales and, secondarily, to smooth production.

This paper investigates the sources and methods used to construct the aggregate data on consumer spending in the United States, searching especially for imperfections that may have implications for the outcome of empirical work. The paper identifies two such imperfections: sampling error and compositional error. It then presents several examples intended to illustrate that these imperfections may be empirically important and that appropriate remedies for them often can be devised. The paper concludes by suggesting some guidelines of empirical practice.

This paper shows that in several U.S. manufacturing industries, the seasonal variability of production and inventories varies with the state of the business cycle. We present a simple model which implies that if firms reduce the seasonal variability of their production as the economy strengthens, and they either hold constant or increase the stock of inventories they bring into the high-production seasons of the year, then they must be facing upward-sloping and convex marginal cost curves. We conclude that firms in a number of industries face upward-sloping and convex marginal-production-cost curves.

In this paper, we use the relative moments in bank loans and commercial paper to provide evidence on the existence of a loan-supply channel of monetary-policy transmission. We find that tighter monetary policy leads to a shift in firms' mix of external financing: commercial paper issuance rises while bank loans fall. This suggests that contractionary policy can indeed reduce loan supply. Furthermore, such shifts in loan supply seem to affect investment, even controlling for interest rates and output.

This paper analyzes dynamics of production and inventories at the General Motors Corporation during the 1920s and 1930s. The authors begin by examining anecdotal evidence on the nature of the production control system in force during that period. Motivated by that evidence, they then extend the conventional linear-quadratic model of production behavior to take account of annual shutdown. Finally, the authors apply the modified model to newly available data on monthly unit production, sales, and inventories during 1924-40. General Motors appears to have been aiming to maintain a targeted level of inventory relative to expected sales and, secondarily, to smooth production.

This manuscript is a “work of the United States Government ” within the meaning of the Copyright Act, 17 U.S.C. § 101. As such, the manuscript is not entitled to copyright protection, 17 U.S.C. § 105. Accordingly, the manuscript is in the public domain as a matter of law.

In the three months following the Iraqi invasion of Kuwait, the University of Michigan's Index of Consumer Sentiment (ICS) fell an unprecedented 24.3 index points, to its lowest level since the 1981-1982 recession.' This collapse in household confidence became the focus of a great deal of economic commentary and, indeed, frequently was cited as an important-if not the leading-cause of the economic slowdown that ensued. Concern was fueled by the well-known contemporaneous correlation between the ICS and the growth of household spending. Figure 1 shows quarterly averages of the index, 1978-1993, together with the quarterly growth in real personal consumption expenditures as measured in the national income accounts (Bureau of Economic Analysis). The correlation is impressive. Of course, it is not surprising that sentiment and the growth of spending are positively correlated. This correlation may simply reflect that, when economic prospects are poor, households curtail their spending and also give gloomy responses to interviewers. Thus, the contemporaneous correlation between sentiment and spending does not refute traditional life-cycle or permanentincome models of consumption. Nor does it necessarily make the job of forecasting changes in consumption any easier. From the point of view of an economic forecaster, the questions of interest are first, whether an index of consumer sentiment has any predictive power on its own for future changes in consumption spending, and second, whether it contains information about future changes in consumer spending aside from the information contained in other available indicators. In Section I, we present evidence that the answer to the first question is a clear yes: we find that lagged values of the ICS, taken on their own, explain about 14 percent of the variation in the growth of total real personal consumption expenditures over the post1954 period. Further investigation shows that the answer to the second question is probably yes as well, though here the margin is narrower and the evidence more murky. The ICS contributes about 3 percent to the R2 of a simple reduced-form equation for total personal consumption expenditures in the longer of the two sample periods we examine, but nothing in the shorter sample period (though the latter result is heavily influenced by the observation for 1980:2). For the major subcategories of spending, the contribution generally ranges between 1 percent and 8 percent. Overall, we read the evidence as pointing toward at least some significant incremental explanatory power. Therefore, we take as given for the remainder of the paper that sentiment forecasts spending, and we turn to the issue of how that statistical relationship should be interpreted. One possible interpretation is that sentiment is an independent driving factor in the economy, and that changes in * Carroll: Division of Research and Statistics, Stop 80, Federal Reserve Board, Washington, DC 20551: Fuhrer: Research Department, Federal Reserve Bank of Boston, Boston, MA 02106: Wilcox: Division of Monetary Affairs, Stop 71, Federal Reserve Board, Washington, DC 20551. We have benefited from the research assistance of Stephen Helwig and Christopher Geczy and the comments of an anonymous referee. The views expressed in this paper are those of the authors and not of the Federal Reserve Board, the Federal Reserve Bank of Boston, or the other members of the staff of either institution. IThe Conference Board's Consumer Confidence Index also plunged at the same time.