Indicators of Consumer Behavior:

The University of Michigan

Surveys of Consumers

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RICHARD T. CURTIN

THE Survey Research Center at The University of Michigan began a

series of periodic consumer surveys more than 35 years ago, under
the direction of George Katona. The Surveys of Consumers were
developed and based on a theoretical view designated as behavioral or
psychological economics (Katona, 1951; 1956; 1964; 1975; 1978;
1980). The underlying theory focuses on the human factor in eco-
nomic affairs. During the past several decades, changes in consumer
expenditures for housing and vehicles have played a major role in
determining whether the entire economy slipped into recession or
moved toward recovery and growth. The consumer, rather than busi-
ness or the government, has become the dominant actor in shaping
the course of the aggregate economy.
For the analysis of short-run fluctuations in economic activity,
consumer outlays can be roughly categorized as either necessary or
discretionary expenditures. The aggregate level of expenditures for
necessary budget items is more stable over time and shows only small
cyclical variation. Consumer decisions regarding necessary ex-
penditures are frequently governed by need and guided by the force of
habit, and in some cases, by contractual requirements—as for exam-
ple, expenditures on shelter or loan repayments. Discretionary ex-
penditures, in contrast, more frequently involve active decision mak-

Abstrect Data gathered by the Surveys of Consumers over the past several decades
show that changes in consumer attitudes and expectations occur in advance of action.
Current data can be measured and used to predict aggregate trends in consumer
expenditures for houses, cars, and large household durables, as well as the incurrence
of debt and acquisition of financial assets.
Richard T. Curtin is Director, Surveys of Consumers, Survey Research Center, The
University of Michigan.

Public Opmloo Quarterly Vol. 4&MO-352 © 1982 by the T r a t t e j of Columbia Unhreraity

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INDICATORS OF CONSUMER BEHAVIOR 341

ing on the part of the consumer, and the timing of the purchase is
subject to greater variation.
Another important characteristic of discretionary expenditures is
the investment aspect of these outlays. Houses, vehicles, and large
durables are purchased not just for current use, but to provide for
future consumption. Since the average usable life of these physical
assets is long, and the initial cost is high, consumer purchases often
involve the use of loans, to be repaid from expected future earnings.
These factors emphasize the need for consumer decisions to take

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account of expected future developments, not simply their current or
past economic situations. Consequently, changes in consumer discre-
tionary expenditures depend not only on income, prices, interest
rates, and other traditional market variables, but also on the attitudes
and expectations of the decision makers.
Katona postulated that economic optimism breeds consumer confi-
dence and a willingness to make large expenditures and debt com-
mitments, and that economic uncertainty breeds pessimism and a
desire to curtail expenditures and rebuild financial reserves. When
very many people, at the same time, change from an optimistic to a
pessimistic view of economic prospects, Katona postulated, a sub-
sequent and widespread shift toward postponement of discretionary
expenditures follows. Since change in attitudes and expectations oc-
curs in advance of action, measures of consumer attitudes and ex-
pectations can act as leading indicators of aggregate economic ac-
tivity. As shown in Figure 1, the Index of Consumer Sentiment has
been repeatedly observed to decline prior to recessionary periods
(indicated by the shaded portions of the chart).

Survey Content
Many of the questionnaire items used in the Surveys of Consumers
date back to the mid-1940s, and were regularly measured three times
a year in the 1950s, quarterly from 1960 through 1977, and on a
monthly basis since 1978. Each survey contains approximately 40
core questions, each of which probes a different aspect of consumer
sentiment. The questions asked cover three broad areas: personal
finances, business conditions, and buying conditions. (See Appendix
A for a brief description of the core questionnaire items.) Overall
assessments of past and expected changes in personal finances are
supplemented by measures of the expected change in nominal family
income, as well as expected real income changes. Attitudes toward
business conditions in the economy as a whole over the near and
long-term horizon are measured in detail. Specific questionnaire items
 ttJCHAHDT. CUBTIN

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1954 1958 1962 1966 1970 1974 1978

QUARTERLY DATA
3-MONTH MOVING AVERAGE

Figure 1. Historical Series—The Index of Consumer Sentiment

NOTE: Each tic mark on the time scale represents the month of January for the
indicated year. The National Bureau of Economic Research gives these reference dates
for recessions:

November 1948—October 1949

July 1953-JHay 1954
August 1957—April 1958
April 1960—February 1961
June 1966—November 1967 (growth recession)
December 1969—November 1970
November 197 J—March 1975
January 1980-July 1980

A recession is defined as a reduction in the national output of goods and services,

generally lasting at least two quarters. A growth recession is defined as a retardation in
the rate of growth of output and employment (usually followed by a recession and always
the initial stage of a recession).

concerning expected changes in the rate of interest, unemployment,

and inflation supplement the more general assessments. Finally, sev-
eral questions probe for the respondent's appraisal of present market
conditions for large household durables, vehicles, and houses. Data
on general attitudes toward market price and supply conditions are
supplemented by purchase intention data.
The survey measures are not intended to establish the absolute
level of consumer sentiment at any given time. They are intended to
measure change. Comparisons with previous measurements indicate
the direction of change in consumer attitudes and expectations, and to
INDICATORS OF CONSUMER BEHAVIOR 343

some extent, the degree of that change. Moreover, the analytic focus
is not only on the direction of change, but also on understanding why
these changes in consumer attitudes and expectations occur, and how
these changes relate to subsequent shifts in consumer behavior.
Consumer attitudes and expectations are constantly changing in
response to a continuous flow of events, information, and personal
experiences. Even where economic decisions are similar to those
made in past situations, there is no guarantee that consumers will
respond in the same way, since they are capable of learning and

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adapting their behavior to changed circumstances. Consequently, a
second type of questionnaire item is used to supplement the identical
questions asked in each survey. The regularly repeated core questions
relate to economic developments which are assumed to be influential
at most or all times, such as changes in family income, employment,
or prices. But since each new period brings forth new events, each
survey also contains several additional questions to ascertain reac-
tions to particular economic developments, such as proposals to
change taxes or control prices.
Finally, the surveys contain behavioral measures, especially detail
on large consumer expenditures, changes in financial assets and
liabilities, household income and employment, and a broad array of
demographic characteristics. Overall, a significant part of the ques-
tionnaire has remained unchanged for more than a quarter century,
and most surveys were supplemented by additional questions formu-
lated according to the requirements of a given time.
A summary measure of trends in consumers' attitudes and expecta-
tions is derived from five questions, repeated regularly, which com-
prise the Index of Consumer Sentiment (Figure 1). (See Appendix B,
questions 1-5 for exact questionnaire wording). Two questions are
included on past and expected changes in personal finances, two
questions focus on the short- and long-term outlook for business
conditions, and one question on buying conditions for large consumer
durables. Each component question receives equal weight in the cal-
culation of the index. Since it is just as important to know why
consumers feel as they do as it is to know how they feel, the index
questions are supplemented by questions about people's reasons for
their answers. The interviewer probes most answers given by the
respondents by asking, for example, "Why do you think so?" or
"Why do you say so?" The fixed-question free-response interviewing
method yields detailed answers that are recorded as completely as
possible by the interviewers. Answers to these probing questions turn
up cue words like recession, shortages, unemployment, inflation, and
so forth. The frequency of these references at a given time, available
344 RICHARD T. CURTIN

from a content analysis of answers, serves to uncover the salient

reasons underlying the changes in attitudes.

Sample Design
The samples for the Surveys of Consumers are designed to be
representative of all private households in the contiguous United
States. Over the history of these surveys, the sample design and
survey methodology has included both personal interviews (using

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multistage area probability methods to select a random cross-section
of private dwellings), and telephone interviews (using samples
selected from all private households with telephones, based on
random-digit-dialing techniques). The basic sample designs differ in
that personal interview surveys use census data to assign probabilities
of selections to areas (such as to counties, cities, towns, or blocks),
whereas national telephone surveys use the unique ten-digit identifier
of telephones to generate a random selection of private households.
During the 1950s, the Surveys of Consumer Attitudes were con-
ducted only by personal interviews. Personal interviews remained the
dominant form of data collection in the early 1960s, although tele-
phone reinterviews of respondents first interviewed in person at home
were interspersed at irregular intervals in the quarterly series of
surveys. Since 1976, random-digit-dialed telephone samples have
been the dominant form of data collection.
The selection of the sample households, under both designs, is
performed after stratification by geography and the level of population
density. Stratification by these criteria assures a balanced sample
representation of different geographic regions and metropolitan size
categories. Both types of samples are drawn so that every eligible
household in the contiguous United States has an equal chance of
being selected. Several analyses have been performed to determine
whether differences in sampling methodologies were related to dif-
ferences in responses to identical questionnaire items. These studies
found minor but not significant difference in overall response patterns
(Groves and Kahn, 1979).

Rotating Panel Design

Since January 1978, monthly samples for the Surveys of Consumer
Attitudes have incorporated a systematic rotating panel design. For
each monthly survey, an independent and representative sample of
telephone households is drawn. The respondents chosen in this
drawing are then reinterviewed in six months. A rotating panel design
INDICATORS OF CONSUMER BEHAVIOR 34S

results, with the total sample for any one survey normally made up of
approximately half new respondents and half being interviewed for
the second time. This combined design permits the regular measure-
ment of change in the aggregate through the use of the independent
cross-section samples, and also allows the assessment of change
among identical individuals over six-month intervals. The rotating
panel design thus permits two separate estimates of change in con-
sumer attitudes and expectations. These two estimates differ more
than by just the implied assumptions about measurement and

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stochastic errors. In economic affairs, it matters a great deal whether
a 10 percent aggregate increase in income is distributed evenly among
all income classes, or whether sizable income declines on the part of
the many were simply offset by even larger increases received by the
few.
The rotating panel design attempts to balance benefits with costs,
so as to maximize its ability to assess individual change as well as
maintain the representativeness of the results. Panel designs provide
important information on the attitude-behavior link, and permit, for
example, an examination of the fulfillment or nonfulfillment of con-
sumer plans or purchase intentions. The advantages of greater mea-
surement precision of panel designs are also accompanied by greater
complexity in the analysis and interpretation of the collected data.
Panel studies do not solve problems of causal interpretation, since the
observed time sequence of change in attitudes and behavior is not a
sufficient or, in some cases, even a necessary condition of the under-
lying theoretical model. In addition, as the benefits of panel surveys
increase with each additional interview, the data also progressively
suffer from falling response rates. The tradeoff between losses in
representativeness and gains from more detailed panel information
promoted the use of the mix of both the new and the reinterview
sample segments.
The decision to conduct only one reinterview at six-month intervals
was due largely to response rate considerations (see Steeh, 1981). In
the past, considerable use had been made of a third interview, and at
times a fourth contact. The rotating panel at that time was more
complex in that it had one fresh cross-section component, another
segment which had been interviewed on one prior occasion, and a
final segment which had been interviewed on two or more prior
occasions. Because the proportion of respondents from the initial
sample successfully contacted for the third interview fell near 50
percent, the decision was made to restrict the rotating panel to just
one reinterview. The reinterview span of six months was chosen in
part because longer time periods greatly increased the difficulty of
34* RICHARD T. CURTIN

finding and recontacting original respondents, and periods shorter

than six months precluded substantial change.1

Potential Analysis Designs

The rotating panel design of the Surveys of Consumers enables a
flexible array of analysis strategies, including: (a) single cross-section
surveys, (b) successive cross-section surveys over time, (c) single
panel reinterview surveys, and (d) successive panel reinterview sur-

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veys over time. Behavioral models used to describe the process of
change generally include three types of variables—those that vary
across individuals and over time (such as income), those that vary
across individuals but are thought to be constant over at least short
periods of time (tastes and preferences, for example), and those that
vary over time but are constant across all individuals (such as infla-
tion, or other economy-wide developments). Cross-section analysis is
ideally suited to those models which rely on behavioral parameters
that vary across individuals but not over time. If, in addition, the
model includes variables which are postulated to have a similar affect
on all individuals but vary over time, the parameters can then be
estimated by the analysis of successive independent cross-section
surveys. Panel designs are indicated when behavioral change is
viewed as dependent on characteristics that vary among individuals,
across their lifetimes, and over time for society as a whole.
The array of research strategies can be illustrated by the potential
types of analyses of price expectations, as follows:
1. Single cross-section studies have often been used to determine
the accuracy and dispersion of price expectations among population
subgroups, as well as to determine the sources of information which
consumers use to form their expectations.
2. Successive cross-section surveys have been used in time-series
analysis to assess the impact of aggregate changes in price expecta-
1
It should be noted that the problem of representativeness in multiwave panel
surveys is not insurmountable, but it does require enormous research and financial
resources. A major panel study now conducted by the Survey Research Center is the
Panel Study of Income Dynamics, which was designed to follow families over an
extended period of time in order to monitor changes in family economic well-being. The
Panel Study of Income Dynamics has followed, and interviewed annually, a represen-
tative sample of American families since 1968. The study has followed the original 1968
panel families which remained intact, and all members of the 1968 families who left
home, each year interviewing one primary adult in any family containing a member of
one of those 1968 original families. This produces a representative sample of families
each year, as new families formed by children leaving home replace families which die
off. The panel thus continues to be representative with respect to its basic sampling
design.
INDICATORS OF CONSUMES BEHAVIOR 347

tions on both consumer spending decisions—due to buy-in-advance

price rationales—as well as on consumer saving decisions—due to
heightened uncertainty.
3. The panel feature of the sample design has been used to investi-
gate the process of formation and change in price expectations among
identical respondents, and how changes in price expectations influ-
enced their subsequent behavior.
4. A time series of pooled panel studies would permit the estima-
tion of the formation and change in price expectations under varying

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aggregate economic conditions, allowing the estimated process of
formation and change in price expectations to shift over time, to
reflect learning and adaptation to changed circumstances.

Consumer Behavior
A major analytical focus of these data is the understanding and
prediction of aggregate trends in consumer expenditures for housing,
vehicles, and large household durables, as well as the incurrence of
debt and acquisition of financial assets. The time-series relationship
between the Index of Consumer Sentiment and unit sales of single-
family homes is shown in Figure 2, and the association between the
index and unit sales of new cars is shown in Figure 3. In the follow-
ing, only research on trends in automobile purchases is highlighted.
A simple time-series model was used in order to trace the relative

no

1968 1970 1972 1974 1976 1978 1980 1982

ICS I • HOME SALES I

L
Figure 2. The Index of Consumer Sentiment and Total Home Sales
 RICHARD T. CUBTIN

110

2
3J
C

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8
6

1966 1968 1970 1972 1974 1976 1978 1980 1982

• ICS CAR SALES I

L L
Figure 3. The Index of Consumer Sentiment and Total Unit Car Sates

impact of various measures of consumer sentiment on subsequent

purchase behavior. The general model posits that discretionary pur-
chases are a function of consumer ability and willingness to buy—the
familiar Katona equation. The model is not intended for prediction
purposes, but rather to broaden our understanding of the various roles
played by attitudes and expectations in shaping consumer behavior.
The behavioral variable analyzed was unit sales of new passenger
cars. The income proxy used was real personal disposable income per
household. The sentiment variables included were the Index of Con-
sumer Sentiment (see Appendix B, questions 1-5), the overall evalua-
tion of buying conditions for cars, the reasons underlying these evalu-
ations (Appendix B, question 6), and a variable which measured
specific intentions to purchase autos (Appendix B, question 7). These
various sentiment measures do not represent competing hypotheses;
rather, an important objective is to understand the individual circum-
stances and aggregate economic conditions which promote fulfillment
or nonfulfillment of purchase intentions.
As shown in Table 1, the Index of Consumer Sentiment provided
the best explanation of trends in car sales. Evaluations of car market
conditions, as well as the underlying reasons, proved to be significant
predictors; and when the underlying reasons were entered separately,
the equation performed better than the overall market evaluation. The
frequency of references to high interest rates and limited credit
availability have varied inversely with mentions of buy-in-advance
price rationales during the past decade, and together they have domi-
nated the overall trends in market attitudes. As respondents explained
INDICATORS OF CONSUMER BEHAVIOR 349

Table 1. Regression Analysis of Total Unit Passenger Car Sales In the U.S. (1959:2 to
1981:3, Quarterly data, SAAR)

Independent Variables 0) (2) m (4) (5)

Real income per household 1.10* 1.62* 1.36* 1.38* 1.04*
(0.18) (0.11) (0.13) (0.15) (0.11)
Index of Consumer Sentiment 0.07*
(0.01)
Car market attitude 0.03*
(0.01)
Car market reasons

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Low prices 0.002
(0.018)
Buy-in-advance 0.04*
(0.02)
High prices -.05*
(0.02)
High interest rates -0.07*
(0.02)
Purchase intentions 0.51*
(0.12)
Constant -3.74* -15.71* -9.67* -6.31* -7.54*
(2.03) (2.02) (198) (1.37) (1.48)
RSQD-Adj. .297 .726 .562 .736 .588
SEE (standard error of
the estimate) .809 .752 .782 .746 .767
Durbin-Watson 2.39 2.11 2.28 2.16 2.15
Rho .64 .23 .43 .22 .41
* Significant at the .05 level.
NOTE: Generalized least squares was used to correct for autocorrelated errors. All
predictor variables lagged one quarter. Figures in parentheses are standard errors of the
coefficients.

it, the high rate of auto sales recorded in 1978 was due to the
widespread expectation of price increases coupled with the belief that
it was better to buy in advance of those increases, while at the same
time interest rates were viewed as low and credit conditions easy. In
contrast, the low sales rate recorded in 1981 resulted from widespread
postponement because of high interest rates, coupled with the view
that prices were currently too high and might fall later.
Finally, the purchase intention variable was a significant predictor,
although it explained the least amount of variance in car sales. These
results were not unexpected, even if contrary to naive notions of face
validity: the intentions question, which directly assesses potential
future purchases, did not foreshadow actual behavior as well as the
more general measures of consumer sentiment. In part, the more
generalized sentiment measures perform better because they also
foreshadow changes in purchase intentions. However, these results
were obtained in the context of a volatile and uncertain economy,
when changes in purchase plans are frequent. In the early 1960s,
3S0 RICHAKD T. CURTIN

when economic optimism and confidence were widespread, purchase

intentions data provided greater predictive ability.

International Comparisons
The research potential of the Surveys of Consumers has been
enhanced in recent years by the availability of internationally compar-
ative data. Since the early 1970s, 11 countries, in addition to the
United States, have regularly monitored changes in consumer atti-

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tudes and expectations. The countries are Australia, Belgium,
Canada, Denmark, France, West Germany, Ireland, Italy, Japan, the
Netherlands, and the United Kingdom. The questionnaires used in
each country include adapted versions of the items developed in the
Michigan survey. Consequently, an Index of Consumer Sentiment can
be constructed for each country based on comparable questionnaire
items.
Preliminary results from an ongoing research project indicate that
changes in consumer sentiment foreshadow changes in new car pur-
chases in the majority of the countries investigated (Strumpel el al.,
1980). This analysis focused on the basic hypothesis proposed by
Katona, and used a highly simplified model to represent the impact of
changes in consumer income and willingness on subsequent discre-
tionary purchases. The proxy selected to represent change in income
or ability to buy was an index of real wage change in manufacturing
industries, since quarterly data on real personal disposable income is
not available for 6 of the 12 countries. Overall, the Katona hypothesis
received widespread support. In 8 of the 12 countries the Index of
Consumer Sentiment provided a significant link to subsequent
changes in auto purchases. Although the data place the basic hypoth-
esis in a favorable light, the analysis can be considered only prelimi-
nary, not yet being based on adequate evidence. The time period
covered by the analysis was short and was dominated by the steep
declines recorded in the mid-1970s in all 12 countries. Problems of
serial correlation and misspecification, however, will yield to further
research coupled with a more extended analysis period.

Appendix A: Core Questionnaire Items

A. PERSONAL FINANCES
Personal finances better or worse than a year ago, and why.
Personal finances better or worse than five years ago.
Personal finances better or worse in a year.
Personal finances better or worse in five years.
INDICATORS OF CONSUMER BEHAVIOR 3S1

Expected change in nominal family income during the next year.

Change in family real income during the past year.
Expected change in real family income during the next year.
Willingness to use savings to make purchases.
Willingness to use debt to make purchases.
B. BUSINESS CONDITIONS
News heard of recent changes in business conditions.
Business conditions better or worse than a year ago.
Business conditions better or worse in a year, and why.

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Business conditions good or bad during the next five years.
Expected change in interest rates.
Expected change in unemployment.
Percentage change in prices during the past 12 months.
Percentage change in prices during the past five years.
Expected percentage change in prices during the next 12 months.
Expected percentage change in prices during the next five years.
Whether unemployment or inflation the more serious economic problem.
Confidence in government economic policy.
C. MARKET CONDITIONS
Good or bad time to buy a house, and why.
Good or bad time to buy major household durables, and why.
Good or bad time to buy a car, and why.
Vehicle purchase intentions.
Travel and vacation intentions.
D. CONSUMER BEHAVIOR
Ownership and purchases of cars, houses, and large household durables.
Incurrence and balance owed on mortgages, installment loans, credit cards,
and other types of debt.
Ownership and acquisition of stocks, bonds, money market funds, savings
accounts, checking accounts, and other financial instruments.
E. DEMOGRAPHICS
Income
Age
Education
Occupation
Household size and composition
Geographic location

Appendix B: Question Wording

INDEX OF CONSUMER SENTIMENT
1. We are interested in how people are getting along financially these days.
Would you say that you (and your family living there) are better off or
worse off financially than you were a year ago? Why do you say so?
352 RICHARD T. CURTIN

2. Now looking ahead—do you think that a year from now you (and your
family living there) will be better off financially, or worse off, or just
about the same as now?
3. Now turning to business conditions in the country as a whole—do you
think that during the next 12 months we'll have good times financially,
or bad times, or what?
4. Looking ahead, which would you say is more likely—that in the country
as a whole we'll have continuous good times during the next five years
or so, or that we will have periods of widespread unemployment or
depression, or what?

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5. About the big things people buy for their homes—such as furniture, a
refrigerator, a stove, television, and things like that. Generally speaking,
do you think now is a good or a bad time for people to buy major
households items? Why do you say so?

AUTOMOBILE MARKET QUESTIONS

6. Speaking now of the automobile market—do you think the next 12
months or so will be a good time or a bad time to buy a car? Why do
you say so?
7. What do you think are the chances that you (or anyone else in your
family there) will buy or lease a car during the next 12 months—would
you say you probably will, probably will not, or are the chances about
even, or what? (If will buy or chances even) If you do buy or lease a
car, would it be a brand new car, or a used car? Would you buy or
lease? When do you think you might buy a car?

References
Katona, George
1951 Psychological Analysis of Economic Behavior. New York: McGraw-Hill.
1956 Consumer Expectations 1953-36 (with Eva Mueller). Ann Arbor: Institute for
Social Research.
1964 The Mass Consumption Society. New York: McGraw-Hill.
1975 Psychological Economics. New York: Elsevier.
1978 A New Economic Era (with Burkhard Strumpel). New York: Elsevier.
1980 Essays on Behavioral Economics. Ann Arbor Institute for Social Research.
Groves, Robert M., and Robert L. Kahn
1979 Surveys by Telephone: A National Comparison with Personal Interviews.
New York: Academic Press.
Steeh, Charlotte
1981 'Trends in nonresponse rates, 1952-1979." Public Opinion Quarterly
45:40-57.
Strumpel, Burkhard, Alfred Kuss, and Richard Curtin
1980 The Use and Potential of Consumer Anticipations Data in the Member Coun-
tries of the European Community. Two Reports to the Commission of the
European Communities, Brussels.