Consumer Spending (PCE)
Consumer spending, measured by the Personal Consumption Expenditures component of the BEA's Personal Income and Outlays report, tracks the total value of goods and services purchased by U.S. households and is the single largest driver of U.S. GDP.
Personal consumption expenditures account for roughly 68% to 70% of U.S. gross domestic product, making consumer spending the most important variable in the U.S. economic cycle. The Bureau of Economic Analysis (BEA) releases PCE data monthly as part of the Personal Income and Outlays report, typically at the end of the month following the reference period. The report also covers personal income, personal saving, and the PCE Price Index.
Consumer spending is divided into three broad categories: durable goods (items expected to last three or more years, such as vehicles and appliances), nondurable goods (items consumed quickly, such as food and gasoline), and services (the largest component, covering housing, healthcare, financial services, education, and recreation). Services spending tends to be more stable over the economic cycle than goods spending, which makes services-driven economies like the U.S. somewhat more resilient during downturns.
The monthly change in real PCE — which strips out inflation — is one of the primary inputs the BEA uses when calculating GDP growth. When real PCE rises strongly for several consecutive months, GDP growth tends to be solid. When real PCE contracts, GDP is typically under significant pressure. The Atlanta Fed's GDPNow model updates its real-time GDP estimate each time PCE data arrives.
Spending patterns within PCE also reveal the health of specific industries. Healthcare spending trends affect hospital operators and pharmaceutical companies. Vehicle spending affects auto manufacturers and dealers. Restaurant spending reflects discretionary confidence. Financial services spending can signal activity in mortgage origination and investment.
The Federal Reserve watches consumer spending closely alongside the PCE Price Index, since strong spending simultaneously raises GDP and can sustain inflationary pressure. A meaningful deceleration in real PCE growth is often cited as justification for pivoting toward less restrictive monetary policy.