Earnings News and Local Household Spending

Abstract

Using debit and credit card data, we find that a one standard-deviation increase in firms’ earnings surprises leads to a 2% (or aggregate $2.1 billion) increase in bi-weekly consumption by households near the firms’ headquarters. This relation is stronger when the earnings news is more informative about local wealth, more widely disseminated, linked to greater acquisition activity, or when the firm plays a larger economic role in the region (e.g., company towns). The consumption response is also stronger when earnings announcements receive greater media attention and when local households are more financially sophisticated or have higher marginal propensities to consume. The response spans various household types, including small business owners, investors, employees, and other unaffiliated households. Households’ economic expectations shift in response to local firms’ earnings news, and consumption responses are larger when these expectations align more closely with the news, consistent with an informational channel. A two-round survey of 344 households in late 2024—conducted before and after earnings announcements—confirms that spending changes with local firms’ earnings news, driven by changes in household perceptions of firm performance. Our findings altogether indicate that financial reporting informs household consumption decisions.