Macroeconomic Conditions and Updating of Expectations by Older Americans
by Purvi Sevak and Lucie Schmidt
- We find that individuals’ expectations about future macroeconomic outcomes fluctuate from year to year.
- Individuals report higher expectations about a major depression when their State’s unemployment rate is higher and when the S&P 500 declines.
- Declines in the S&P 500 are also associated with higher expectations that the S&P 500 will rise over the next year.
- In general, college graduates’ expectations about the future macroeconomy are more responsive to the current economic climate than are expectations of less educated individuals.
- Individuals in poor and declining physical and mental health have significantly less optimistic expectations about the macroeconomic future.
- Individuals from more vulnerable socioeconomic groups have lower expected probabilities of leaving bequests and higher expected probabilities of having medical expenses use up their savings. They are also significantly less likely to expect to be working past age 62 or 65, which could have important implications for their economic well-being.
- We also find that individuals’ expectations about their future labor supply, bequests and medical expenses also fluctuate from year to year.
- The subjective probability of working at age 65 is significantly higher when the state unemployment rate is higher and both the subjective probability of working at ages 62 and 65 are significantly lower when local house prices rise.
- The unemployment rate effect on working longer is larger for less-educated individuals, while the house price effect is larger for more-educated individuals. This is consistent with the fact that college graduates are less likely to be affected by business cycle fluctuations, and more likely to be homeowners.