PCE stands for? Learn more about it.

PCE stands for Personal consumption expenditures, or consumer spending, show how much people in the United States spend on goods and services. The Bureau of Economic Analysis (BEA), a U.S. government agency, reports that PCE makes up around two-thirds of all spending in the country and plays a key role in driving the gross domestic product (GDP).

The BEA gathers an estimated total for PCE to monitor changes in consumer spending on goods over time. This number helps indicate the economy’s strength and shows how price changes can influence spending.

The BEA Personal Income and Outlays report comes out every month and shows data on personal spending and income. It also gives the most recent update on the Personal Consumption Expenditures Price Index (PCEPI), which tracks price changes and helps us understand inflation.

Learn more about PCE

Consumer spending plays a crucial role in the U.S. economy and is a major component of GDP. This is why it is seen as a key economic indicator. PCE provides insights into how people shop and save.

Economists and analysts look at PCE to predict future spending and economic growth. It helps companies understand their needs for products and services, influencing their hiring and investment decisions. The BEA relies on consumer spending to determine its inflation measure, the PCE Price Index, making it crucial to measure and monitor PCE.

The BEA has been reporting personal consumption expenditures since 2012, using both current and chained dollars. PCE is one of the three components in the BEA’s monthly report on Personal Income and Outlays.

  • Personal income indicates the total earnings of consumers.
  • Disposable personal income is the amount left after taxes.
  • Personal consumption expenditures refer to spending by consumers.

FED Preference for the PCE Price Index

In 2012, the Federal Reserve started using the PCE Price Index as its main measure of inflation for making monetary policy choices. The Fed likes the PCEPI more than the similar Consumer Price Index (CPI) because:

  • The PCEPI shows changes in consumer spending more accurately, like when people choose different products because of price shifts.
  • It includes a wider variety of spending.
  • Older data can be updated to match new information.

Conclusion

Personal consumption expenditures, known as PCE, helps economists, consumers, and businesses track the economy’s performance each month. It looks at how people spend their money and if they choose to save instead. It also reveals how buying habits shift when prices fluctuate. This information gives insight into the demand for goods and services, aiding governments and businesses in their decision-making.