Personal Consumption Expenditures (PCE)
What it is:
Personal Consumption Expenditures (PCE), or the PCE price index, is a statistic compiled and released quarterly by the U.S. Bureau of Economic Analysis (BEA) that synthesizes a host of data, chief among them the U.S. Producer and Consumer Price indices.
How it works (Example):
The PCE price index measures the price fluctuations and related consumer behavior for all domestic consumption of durable and non-durable goods and services targeted toward individuals and households. The PCE "core index", however, excludes the more volatile components of food and energy.
Personal consumption is divided into two key categories: goods and services. The category of "goods" is further broken down into "durable" goods, which are big-ticket items (refrigerators, television sets, cars, mobile phones, etc.) that will last more than three years, and "non-durable" goods that are more transitory (e.g., cosmetics, fuel, clothing, etc.).
Why it Matters:
PCE not only measures underlying inflationary pressures, it also reflects whether the consumer is doing his or her part to propel economic growth.
Because three-fourths of Gross Domestic Product (GDP) is consumer spending, the PCE report is a useful tool for investors to analyze the overall state and direction of the economy.
For more on the PCE and GDP, read: Understanding Economic Indicators: Gross Domestic Product.
