Personal Consumption Expenditures (PCE)

Definition

Personal Consumption Expenditures (PCE) refer to the goods and services purchased by “persons”—households and nonprofit institutions serving households (NPISHs)—who reside in the United States. This measure is provided by the Bureau of Economic Analysis (BEA).

Residents in the U.S. are classified as those who are physically located in the country and have resided or intend to reside for one year or more. PCE also includes expenditures by U.S. government civilian and military personnel stationed abroad, as well as U.S. residents traveling or working abroad for up to one year.

PCE is a crucial component of the U.S. economy, accounting for approximately two-thirds of domestic final spending. It is considered the primary engine driving future economic growth, providing insight into how much household income is being allocated toward current consumption versus savings for future consumption.

Examples

Example 1: Durable Goods

Purchases such as automobiles, appliances, and furniture fall under the durable goods category within PCE. These goods have a lifespan of more than three years and represent a significant chunk of consumer spending.

Example 2: Non-Durable Goods

Everyday items such as groceries, fuel, and clothing are non-durable goods bought by households. Since their life expectancy is less than three years, these goods are also included under PCE.

Example 3: Services

Expenditures on services like healthcare, education, and recreational services are significant components of the PCE. These are ongoing expenses that households incur regularly.

Frequently Asked Questions

What is the primary source of data for PCE?

The Bureau of Economic Analysis (BEA) is the primary source of data for Personal Consumption Expenditures.

Why is the PCE important?

PCE is important because it accounts for about two-thirds of domestic final spending in the U.S. It provides valuable insights into consumer behavior and economic health.

Does PCE include expenditures by U.S. residents abroad?

Yes, PCE includes purchases by U.S. government civilian and military personnel stationed abroad and by U.S. residents who are traveling or working abroad for up to one year.

How does PCE affect economic policy?

Since PCE reflects consumer spending, it significantly influences economic policy decisions related to interest rates, taxation, and government spending.

How frequently is PCE data updated?

PCE data is updated monthly by the BEA, providing timely insight into the state of consumer spending and economic trends.

Gross Domestic Product (GDP)

Description: The total monetary value of all finished goods and services produced within a country’s borders in a specified period. Definition: GDP is a broad measure of overall domestic production and functions as a comprehensive scorecard of a given country’s economic health.

Consumer Price Index (CPI)

Description: A measure examining the weighted average of prices of a basket of consumer goods and services. Definition: CPI is used to calculate inflation and is an essential indicator of the cost of living.

Disposable Personal Income (DPI)

Description: The amount of money that households have available for spending and saving after income taxes have been accounted for. Definition: DPI is important for understanding consumer spending habits and saving rates.

Real Personal Income

Description: Personal income adjusted for inflation. Definition: This measure provides a more accurate assessment of purchasing power by considering changes in prices.

Online References

Suggested Books for Further Studies

“Principles of Economics” by N. Gregory Mankiw
- Covers fundamental economic concepts, including consumer spending and expenditures.
“Microeconomics” by Paul Krugman and Robin Wells
- Offers an in-depth look at consumer behavior and the role of personal consumption in the economy.
“Macroeconomics: Policy and Practice” by Frederic S. Mishkin
- Provides insights into how PCE data is used in economic policy-making.

Fundamentals of Personal Consumption Expenditures: Economics Basics Quiz

### What is personal consumption expenditures (PCE)? - [ ] The total investment in new buildings and structures by businesses. - [ ] Government spending on goods and services. - [x] The total amount spent on goods and services by households and NPISHs. - [ ] The total amount of taxes collected by the federal government. > **Explanation:** PCE measures the total amount spent on goods and services by households and nonprofit institutions serving households. ### Which organization provides data for Personal Consumption Expenditures? - [ ] The Department of Treasury - [ ] The Census Bureau - [x] The Bureau of Economic Analysis (BEA) - [ ] The Federal Reserve > **Explanation:** The Bureau of Economic Analysis (BEA) is the primary source of data for PCE. ### What percentage of U.S. domestic final spending does PCE account for? - [ ] One-third - [ ] Half - [x] Two-thirds - [ ] Entirety > **Explanation:** PCE accounts for about two-thirds of domestic final spending in the U.S. ### Do expenditures by U.S. military personnel stationed abroad count towards PCE? - [x] Yes, they are included. - [ ] No, only domestic expenditures are included. - [ ] Only expenditures by civilian personnel are included. - [ ] Yes, but only if they are stationed abroad for more than a year. > **Explanation:** PCE includes expenditures by U.S. government civilian and military personnel stationed abroad. ### Do expenditures by U.S. residents traveling abroad for vacations count towards PCE? - [x] Yes, if their travel or work duration abroad is less than one year. - [ ] No, they are excluded. - [ ] Only if the travel is for official government business. - [ ] Only travel within the U.S. is counted. > **Explanation:** Expenditures by U.S. residents traveling abroad are included if their travel duration is less than one year. ### How often is PCE data updated by the BEA? - [ ] Quarterly - [x] Monthly - [ ] Annually - [ ] Every week > **Explanation:** The Bureau of Economic Analysis (BEA) updates PCE data on a monthly basis. ### What do durable goods include in PCE? - [ ] Everyday consumables like groceries. - [x] Long-lasting items like automobiles and furniture. - [ ] Services like healthcare and education. - [ ] Perishable items like food. > **Explanation:** Durable goods in PCE include long-lasting items like automobiles, furniture, and appliances. ### What does PCE show about household income? - [ ] Only the total income earned by households. - [x] How much of the income earned by households is being spent on current consumption. - [ ] Only the income saved by households. - [ ] Government transfers to households. > **Explanation:** PCE indicates how much household income is allocated towards current consumption versus savings. ### Which of the following is NOT a component of PCE? - [ ] Services - [x] Government purchases on infrastructure - [ ] Durable goods - [ ] Non-durable goods > **Explanation:** Government purchases on infrastructure are not included in PCE. PCE comprises household expenditures on durable goods, non-durable goods, and services. ### What type of goods and services do NPISHs include in PCE? - [ ] Only durable goods. - [ ] Only non-durable goods. - [x] Goods and services consumed by nonprofit institutions serving households (NPISHs). - [ ] Government services only. > **Explanation:** NPISHs are included in PCE for the goods and services they consume to serve households.

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