Cyclicality and Durability: Evidence from U.S. Consumers' Expediture.

In this paper three hypotheses concerning the cyclicality of U.S. consumers' expenditure are proposed. These hypotheses are based upon the distinction between expenditure on durable and non-durable goods. It is argued that durability will lead to increased cyclical sensitivity and that this increased cyclicality will be of an asymmetric nature. The asymmetric adjustment will be of the form of decreases in expenditure on durable goods being more extensive and more rapid during recessionary phases of the business cycle than corresponding increases during expansionary periods. These hypotheses are evaluated using U.S. data on consumer durables and non-durables over the period 1959-1998. Via the use of the Hodrick-Prescott (1997) filter the cyclical elements of these series are derived and subjected to Sichel's (1993) univariate tests of business cycle asymmetry. Overwhelming support is found for all of the hypotheses proposed.