Earnings News and Local Household Spending
Abstract
Using debit and credit card data, we find that a one standard deviation increase in local firms' earnings surprises leads to a 2% increase in biweekly household consumption among households located near the firms' headquarters. This relation is stronger when earnings news is relevant to the local economy, widely disseminated, linked to increased information acquisition, or a credible signal of firm performance. Consumption responses (a) span various households, including small business owners, investors, employees, and other unaffiliated households, (b) are more pronounced among financially sophisticated households likely able to access earnings news, and (c) are concentrated in inexpensive, discretionary items, such as dining out. A two-round survey of 432 households before and after earnings announcements in late 2024 shows that household consumption responds to local earnings news, primarily because households update their beliefs about financial prospects, with media and word of mouth serving as key news dissemination channels. Our findings altogether indicate that earnings news informs local household consumption decisions.