Personal Consumption Expenditures

What Do Americans Really Spend Their Money on Each Month?

Personal consumption expenditures
Americans spend 12% of their income on rentals and real estate services. Credit: Mitchell Funk

Definition: Personal Consumption Expenditures (PCE) is a measure of national consumer spending. It tells you how much money Americans spend on everyday goods and services. The goods category includes two sub-categories. Consumer durable goods are long-lasting items, such as cars and washing machines. Households use non-durable goods like groceries and clothing quickly. The services category includes those provided by businesses, the government, non-profits, and household workers.

Some examples are dry cleaners, yard maintenance, and banks. 

Personal consumption drives almost 70% of economic output. That's measured by Gross Domestic Product (GDP). As such, it is the main workhorse that drives economic growth. For more, see Components of GDP.

How PCE Is Measured

PCE is part of the National Income and Product Accounts. You'll find PCE in the Personal Income and Outlays report. That tells you how people spend their personal income. They spend most of it on personal outlays. That includes PCE, interest payments, and transfer payments. They put some of it into personal savings.  

The Bureau of Economic Analysis (BEA) reports on PCE every month. It uses the Gross Domestic Product statistics for its base. It must convert the GDP production data to the PCE consumer spending report. How does it do that?

First, it separates out production that goes toward consumer purchases. That includes things like manufacturers’ shipments.

It also includes revenue for utilities, service receipts, and commissions for securities brokerage. Second, it adds imports. Third, it subtracts both exports and changes in inventory. That gives it the amount available for domestic consumption. It allocates that among domestic purchasers. It bases the allocation on trade source data, Census data, and household income surveys.

Another problem is that GDP comes out quarterly, and the BEA estimates PCE every month. The BEA uses the monthly Retail Sales report to fill in gaps. Every ten years it revises all its calculations based on the U.S. Census. (Source: Methodology Papers, NIPA Handbook: Concepts and Methods of the U.S. National Income and Product Accounts, Chapter 5: Personal Consumption Expenditures, BEA.) 

What Americans Spend Their Money On

In 2015, Americans spent $11.2 trillion. Most (65%) went toward service. The biggest components were housing and healthcare services. Non-profits provided another $1.2 trillion in services. Americans spent one-third on goods. The largest categories were food, recreation, and automobiles. Here's a more detailed breakout.

PCE Component Amount (trillions) Percent  
Goods     $3.9  35%
   Durable Goods     $1.5  13%
       ...Auto     $0.4    4%
       ...Furniture     $0.3    3%
       ...Recreational     $0.5    5%
       ...Other Durable     $0.2    2%
   Non-Durable Goods     $2.4  22%
      ...Food     $0.8    7%
      ...Clothing     $0.4    3%
      ...Energy, Gasoline     $0.3    3%
      ...Other       $1.0    9%
Services     $7.3  65%
   Housing     $2.0  18%
   Health Care     $1.9  17%
   Transportion     $0.3    3%
   Hotels/Restaurants     $0.7    6%
   Finance     $0.7    7%
   Non-Profit     $1.2   11%
   Other Services     $1.0     9%
Residual    ($0.1)    (1%)
TOTAL PCE   $11.2  100%

 (Source: Current Personal Consumer Expenditures, Table 2.3.6. Real Personal Consumption Expenditures by Major Type of Product, Chained Dollars, Bureau of Economic Analysis.)

Most personal consumption expenditures are made through retailing. Here are the latest Retail Sales Statistics.

Why PCE Is Important

PCE reveals how much households spend on immediate consumption versus savings for future use. Higher consumption levels translate directly into greater GDP growth. A higher savings rate is good for long-term economic health. That's because banks used savings to fund loans for mortgages and business investments.

Analysts also use the PCE report to understand household buying habits.  For example, it shows how shopping patterns change in response to sharp price increases. That often happens when gas prices change dramatically. In that way, PCE reveals the elasticity for demand. When demand for various goods and services is elastic, then demand falls as the price goes up. When it's inelastic, then demand stays pretty much the same despite price increases.

PCE is used as the basis to calculate the PCE Inflation Index. The Federal Reserve uses that report its preferred measurement of inflation. It is more accurate than the commonly-used Consumer Price Index