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What is Personal Consumption Expenditures?

Written by Dan Green

Dan Green

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Updated: January 21, 2024

What is Personal Consumption Expenditures?

Personal Consumption Expenditures (PCE) is an economic indicator representing the value of household goods and services consumed.

TABLE OF CONTENTS

Personal Consumption Expenditures: A Detailed Explanation

Personal Consumption Expenditures (PCE) measure the total amount individuals and households spend on goods and services. The PCE describes consumer spending habits, which is a significant component of overall U.S. economic activity.

The Bureau of Economic Analysis (BEA) collects and publishes Personal Consumption Expenditures data. PCE is a critical component of the Gross Domestic Product (GDP) calculations, representing the largest share of GDP. Policymakers and economists often use PCE to gauge the economy’s health, as changes in consumer spending can reflect broader economic trends.

The Federal Reserve relies on PCE to measure inflation, which influences mortgage rates.

How is Personal Consumption Expenditures Calculated?

PCE is calculated by summing expenditures on durable goods, nondurable goods, and services by households and nonprofit institutions serving households. Data is gathered from various sources, including business surveys and government reports, and adjusted for inflation. This adjustment allows for a more accurate comparison over time by accounting for changes in the prices of goods and services.

Personal Consumption Expenditures: Chart

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Data: Bureau of Economic Analysis. Do not reprint without permission.

Common Questions About Personal Consumption Expenditures

How does Personal Consumption Expenditures differ from other consumer spending measures?

PCE differs from other consumer spending measures in its scope. Compared to Retail Sales, which focuses strictly on the sale of goods, PCE includes spending on goods and services. Additionally, PCE is adjusted for inflation and changes in consumer behavior over time, making it a more comprehensive measure.

Why is Personal Consumption Expenditures important to housing?

PCE is important because consumer spending drives most U.S. economic activity. Fluctuations in PCE may indicate changes in consumer confidence and economic health. PCE is a key indicator for policymakers and economists.

How does PCE impact monetary policy?

The Federal Reserve closely monitors PCE, particularly the PCE Price Index, which measures inflation. Changes in PCE can influence interest rates and other policy measures. A high PCE may prompt the Fed to raise the Fed Funds Rate to control inflation, while a low PCE could lead to lower interest rates to stimulate spending.

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