Consumer spending, measured by Personal Consumption Expenditures (PCE), makes up approximately two-thirds of the economy and is a direct measure of purchasing activity. PCE is a reliable indication of inflation because it is calculated from data acquired directly from the GDP report and businesses. We see where consumers are spending their dollars, whether it be durable and nondurable goods, or on services. Changes in the personal income level dictate consumer spending.
Personal income rose to 0.3% in June, up from May’s increase of .2%. Consumer spending decreased to 0.28% for June, down from the previous month’s revised .46%. Core PCE gained .47% in June from .52% in May. PCE is up 3.9% year-over-year and Core PCE is up 4.4% over the last June.
The discrepancy in monthly change between PCE and core PCE could have to do with decreasing costs of oil since its recent high of $63.86 per-barrel in April 2019. Because of this, consumers are able to spend less on necessities such as energy and put it towards other, less necessary goods. Another factor contributing to strong personal consumption is rising real disposable income, or income that can be used to purchase things that consumers want but do not need. Strong consumer spending and rising income levels indicate consumers have confidence in continued economic strength.
July 30, 2019