Table of Contents
- What Is Personal Consumption Expenditures (PCE)?
- Key Takeaways
- Understanding Personal Consumption Expenditures
- The PCE Price Index
- Tracking the PCE Price Index
- Fed Preference for the PCE Price Index
- Important Distinction
- How PCE Is Measured
- Advantages and Disadvantages of PCE
- Recent PCE Readings
- What Is the Importance of the Personal Consumption Expenditures Number?
- What Is the Difference Between the PCE Price Index and the Consumer Price Index?
- What Does the PCE Data Show Us?
- The Bottom Line
What Is Personal Consumption Expenditures (PCE)?
Let me explain Personal Consumption Expenditures (PCE), which you might also hear called consumer spending—it's essentially a measure of how much people in the United States spend on goods and services.
According to the Bureau of Economic Analysis (BEA), a U.S. government agency, PCE makes up about two-thirds of all domestic spending and plays a major role in driving gross domestic product (GDP).
The BEA puts together an estimated total for PCE to track how spending on consumer goods changes over time, giving you a sense of the economy's strength and how shifts in prices impact what people buy.
Every month, the BEA's Personal Income and Outlays report comes out with the latest stats on personal spending and income, and it includes the Personal Consumption Expenditures Price Index (PCEPI), which tracks price changes and offers a look at inflation.
Key Takeaways
You need to know that PCE is a straightforward measure of consumer spending, put together and reported by the Bureau of Economic Analysis along with personal income and the PCE Price Index in their monthly Personal Income and Outlays report.
It covers spending on durable goods, non-durable goods, and services, and the PCEPI is what the Federal Reserve uses to gauge inflation.
These PCE figures directly influence decisions on business offerings, hiring practices, and investments.
Understanding Personal Consumption Expenditures
Consumer spending is a core driver of the U.S. economy and a key component of GDP, which is why it's seen as a leading economic indicator—PCE gives you insight into buying habits and savings levels.
Economists and analysts rely on PCE to project future spending and economic growth, and it helps companies figure out their needs for products and services, which can affect hiring and investing decisions.
The BEA uses consumer spending data to calculate its inflation measure, the PCE Price Index, making it essential to measure and track PCE.
Since 2012, the BEA has reported PCE in both current dollars and chained dollars, and it's one of three parts in their monthly Personal Income and Outlays report: personal income (how much consumers earn), disposable personal income (income after taxes), and personal consumption expenditures (also known as outlays or consumer spending).
The PCE Price Index
Beyond the basic measurements, the Personal Income and Outlays report includes the PCE Price Index (PCEPI), which measures the prices consumers pay for goods and services and how those prices change—it's a key gauge of inflation in the U.S. economy.
The PCEPI is built from PCE data and can show if prices are inflating or deflating, along with how that affects consumer spending behavior.
It provides two figures: one from all PCE spending categories, and a second that excludes food and energy, called the core PCE price index.
The core PCEPI helps reveal underlying inflation trends more clearly, since food and energy prices fluctuate more often and can hide those trends.
Tracking the PCE Price Index
The BEA calculates the PCE Price Index using the current dollar value of PCE, showing price inflation or deflation from one period to the next.
Like other price indexes, the PCEPI incorporates a deflator (the PCE deflator) and real values to figure out periodic price changes.
Both the full PCE Price Index and the core version (excluding food and energy) track how prices change over time, with breakdowns by category for inflation or deflation.
Fed Preference for the PCE Price Index
Since 2000, the PCE Price Index has been the main inflation index the Federal Reserve uses for monetary policy decisions.
The Fed chooses the PCEPI over the Consumer Price Index (CPI) because it better captures changes in consumer spending, like switching to substitute goods when prices rise, covers a wider range of spending, and allows adjustments to past data with new information.
It's weighted by business survey data, which is more reliable than the consumer surveys for CPI, and uses a formula that accounts for short-term changes in behavior, making it a more comprehensive inflation measure.
The Fed relies on these details because even small inflation signals can indicate a growing economy—other indexes like the Producer Price Index (PPI) and Gross Domestic Product Price Index are also tracked.
Important Distinction
Remember, personal consumption expenditures and the PCE Price Index are separate: PCE measures actual spending on goods and services, while the PCEPI measures the prices of those items, both calculated by the Bureau of Economic Analysis.
How PCE Is Measured
The BEA reports the total value of PCE every month, splitting it between consumer goods and services, with durable goods (lasting over three years, like cars and appliances) and non-durable goods (under three years, like gasoline and clothing) as parts of consumer goods.
Services include things like legal advice, house cleaning, and plumbing.
PCE data cover categories such as durable goods (motor vehicles, furnishings, recreational goods), non-durable goods (food, clothing, energy), and services (housing, healthcare, transportation, recreation, food services, financial services, and others).
The BEA measures this for the whole nation, broken down by state and D.C., with monthly reports and annual details.
Most PCE comes from household purchases of new goods and services from businesses and government, plus nonprofit services, used goods, purchases abroad by U.S. residents, and third-party spending like employer-paid insurance or government programs.
Advantages and Disadvantages of PCE
On the advantages side, PCE data give you a clear view of the economy's health, which is crucial for policy and business decisions—strong spending signals a healthy economy, while cutbacks point to issues.
It aggregates spending across a wide range of commodities, covering more of what people actually buy.
For disadvantages, PCE data can have measurement errors from collection or source data, and classification errors in national accounts.
Figures get revised yearly, which can change measurements over time, leading some to question the accuracy of valuing PCE.
Recent PCE Readings
In March 2025, personal income rose by $116.8 billion, a 0.5% increase from the prior month.
Disposable personal income went up by $102 billion (also 0.5%), and PCE increased by $134.5 billion (0.7%).
The PCE Price Index dropped less than 0.1%, while excluding food and energy, it rose 0.1%.
What Is the Importance of the Personal Consumption Expenditures Number?
The PCE number shows how Americans spend collectively, and tracking it month to month indicates the overall health of the economy—it's also a core part of the PCE Price Index for monitoring inflation or deflation in prices.
What Is the Difference Between the PCE Price Index and the Consumer Price Index?
The CPI comes from the Bureau of Labor Statistics based on urban household surveys, measuring a fixed basket of regular purchases, while the PCE from the BEA covers all households and third-party purchases, including by government personnel.
What Does the PCE Data Show Us?
The Personal Income and Outlays report details changes in personal consumption, disposable income, PCE, and the PCE Price Index for the month.
The Bottom Line
Personal consumption expenditures, or PCE, let economists, consumers, and businesses track the economy's performance month by month.
It measures spending versus saving and how habits shift with price changes, providing insights into demand that help governments and businesses make informed decisions.
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