How to interpret consumer confidence shocks? State-level evidence

Using novel quarterly data of 29 U.S. states from 2005:I to 2015:IV, we revisit the link between consumer confidence and economic activity. We find that an innovation in consumer confidence is followed by a significant and persistent increase in consumption and output but a temporary decline in inflation. These findings suggest that the supply-side (news) interpretation of consumer confidence receives more empirical support than the demand-side (animal spirit) interpretation in our sample.