In this paper household level data are used to explore whether unemployment risk211u001eis an important factor in the timing of durable goods purchase decisions. A 211u001etheoretical model is presented in which both income uncertainty and household 211u001edebt play a direct role in spending decisions. The model predicts that consumers 211u001erespond to increases in unemployment risk by postponing purchases of the durable 211u001egood and reducing their spending on non-durable goods in order to bolster their 211u001eprecautionary buffer-stock of liquid assets. It also implies that as consumers 211u001egrow older and accumulate savings for retirement their consumption decisions 211u001ebecome less sensitive to unemployment risk. Using unemployment probability 211u001eestimates constructed from the Current Population Survey, a model of home 211u001epurchase decisions for households in the 1983 and 1992 Surveys of Consumer 211u001eFinances is estimated. Consistent with the theoretical model, there is evidence 211u001ethat unemployment risk has a direct effect on the timing of home purchases: 211u001ehouseholds with a higher probability of becoming unemployed are less likely to 211u001ehave recently purchased a home, even after controlling for demographic variables. 211u001eThe prediction that older consumers are less sensitive to unemployment risk is 211u001ealso validated. Similar tests of car purchase decisions indicate that consumers 211u001ewho face greater unemployment risk are also less likely to purchase a vehicle. 211u001eFinally, another finding consistent with the theoretical model is that consumers 211u001ewho are observed to have bought a house despite facing high unemployment risk 211u001etend to have more liquid assets left over than homebuyers who face ordinary or 211u001elow unemployment risks.
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