Abstract

We study the role played by household expectations on own economic prospects and sentiments on general economic conditions in shaping their actual and planned consumption behavior. Using data from the Special Survey of Italian Households collected by the Banca d’Italia, we implement a latent class analysis to cluster households into homogeneous groups based on their sentiments. Then, we study the relation between these clusters and household expectations with consumption and saving behavior. Our results show that sentiments and expectations are not statistically related to shopping behavior during the pandemic. On the other hand, they are significant determinants of consumption plans and expected savings. In particular, pessimistic households are more likely to plan a reduction in consumption in the near future; nonetheless, they are less likely to expect positive savings in the 12-month period following the interview. The share of pessimistic households decreases throughout 2021, and if we impute consumption expenditure levels from an external source we find that the share of aggregate consumption of pessimistic households is low. Overall, our results suggest that this group of households may play a limited role in affecting the overall economic situation in the future