Consumer uncertainty shapes spending and saving behavior
The European Central Bank's Consumer Expectations Survey (CES) offers unique insights into how perceptions of economic uncertainty influence household spending and saving decisions. The survey reveals significant variations across different household types and their planned responses to future financial unpredictability.
Tracking the ebb and flow of uncertainty
The ECB's Consumer Expectations Survey (CES) provides a timely, granular measure of uncertainty, aligning closely with the European Commission's consumer uncertainty indicator.
Both measures, despite methodological differences, show that uncertainty remains elevated.
It is currently below its peak in 2022-23, a period marked by the war in Ukraine and surging energy and food prices.
However, current uncertainty levels are still higher than the trough observed in mid-2021, when the economy was recovering from the COVID-19 pandemic.
The CES derives an implied uncertainty measure from the probabilistic distribution of expected income growth, while the European Commission's indicator captures subjective perceptions of financial predictability.
This consistent trend underscores the persistent role of uncertainty in shaping economic behavior across the euro area, highlighting its continued relevance for aggregate demand dynamics.
Uncertainty's uneven burden on households
Uncertainty's impact varies significantly across household types.
Liquidity-constrained households (53%) and unemployed respondents (49%) report greater difficulty predicting their financial situation, compared to unconstrained (24%) and employed households.
This highlights job security as a key driver of household income risk.
In response, uncertain households are more likely to reduce spending (53% vs. 42%) and delay major purchases (37% vs. 26%).
They also plan to adjust their labor supply (35% vs. 22%) by seeking additional income or changing career plans.
These planned actions align with precautionary saving motives.
A persistent drag on demand
The CES data clearly illustrates how elevated economic uncertainty directly translates into reduced consumption and increased precautionary saving across the euro area.
This dynamic, particularly pronounced among vulnerable households, acts as a significant headwind to aggregate demand.
Policymakers must consider these behavioral shifts when assessing the overall economic outlook and the effectiveness of stimulus measures.