U.S. Goods Consumption Outpaced Services Post-Pandemic
Personal consumption expenditures (PCE), commonly referred to as consumer spending, serves as a crucial metric for gauging the expenditure on goods and services by individuals within the United States.
Consumer spending stands as a linchpin in the U.S. economy, constituting a significant portion of the Gross Domestic Product (GDP). Given its pivotal role, PCE is recognized as a leading economic indicator, providing valuable insights into evolving consumer behavior across a broad spectrum of expenses, thereby illuminating purchasing patterns and savings behaviors.
The Bureau of Economic Analysis (BEA) compiles estimates for total PCE to systematically measure and monitor fluctuations in consumer spending on goods over time.
PCE commands keen attention from the Federal Reserve as a pivotal economic indicator. Economists and analysts rely on PCE data to formulate forecasts regarding future expenditure trends and overall economic expansion. This data also empowers businesses with critical insights into consumer demands, influencing decisions regarding production, service provision, hiring, and investment strategies. Notably, the BEA leverages consumer spending data to calculate its PCE Price Index, an essential measure in assessing inflationary pressures, further underscoring the significance of measuring and tracking PCE.
Throughout the COVID-19 pandemic, a prominent trend has emerged: a significant shift in consumer demand from services to goods. With individuals largely confined to their homes and hesitant to engage in high-risk service activities due to COVID concerns, consumer spending has surged notably towards goods, particularly durable items. This heightened demand has placed immense strain on supply chains, leading to a widespread increase in inflation as producers struggle to accommodate the substantial change in consumer preferences.
According to the BEA, the share of goods in U.S. consumer spending, which exceeded 50% until 1970, gradually declined to approximately 31% in 2019. However, following the COVID-19 pandemic, this share surged to 35% in 2022. Between 2017 and January 2024, total real consumer spending witnessed an 18% increase, with goods experiencing a 29% rise and services a 13% uptick during the same period.