Consumption, labor income uncertainty, and economic news coverage

In the past decade, weak household consumption was an important reason for low rates of overall economic growth in Germany. Many explanations for the weakness have been provided and investigated in previous studies, but the role of media-driven uncertainty has not been addressed. Therefore, this study examines the link between economic news coverage and aggregate consumption. Consumption, information-processing, and decision-making theory all serve to derive hypotheses, which are evaluated using time-series data and information obtained from media content analyses. For the period from 2001 to 2009, the results indicate that consumption is mainly influenced by the long-run effects of news coverage. In this regard, decisions to consume are subject to an optimism bias, such that favorable news leads to a stronger increase in consumption than the decrease caused by unfavorable news. Media effects are erratic in the short run though, because it takes time for households to identify new economic trends.