Personal Consumption Expenditures (PCE) is the estimated total of consumer spendings. PCE include how much is spent on durable goods (products that do not wear out quickly) and non-durable goods (products that typically last anywhere less than 3 years), as well as services. A service is anything that a business provides to an individual that they can't do for themselves.

The PCE Price Index (PCEPI) is derived from PCE and measures price changes in consumer goods and services exchanged in the U.S. economy. Since 2012, the PCE Price Index became the primary inflation index used by the U.S. Federal Reserve when making monetary policy decisions.

Key Takeaways

Personal consumption expenditures (PCE) data reflects how well the economy is faring. When people are spending without any hesitation PCE rises and it usually means that the economy is doing well. When people cut back on spending then PCE slows down or lowers and it could mean there are problems in the economy. PCE therefore is an indicator of the overall economic health.

The rate at which PCE rises or falls must also be paid attention. If the rate of change of PCE (YoY or MoM) is higher than normal over a period of time, it indicates inflationary or deflationary scenarios. Both those extreme scenarios portend negative news for health of the economy and therefore the stock market.