Why Is Personal Consumption Expenditure Important?
Personal consumption expenditure reveals the amount that households spend on immediate consumption versus saving for the future. Higher levels of consumption translate into greater GDP growth in the short term. On the other hand, a higher savings rate is considered good for long-term economic health. Banks use savings to finance mortgage loans and business investments.
How Is Personal Consumption Expenditure Measured?
The Bureau of Economic Analysis reports personal consumption expenditure every month. This is done as part of national income and product accounts. You will find personal consumption expenditure in the personal income and outlays report. This report tells you how people spend their income. They spend most of it on personal outlays. This category includes personal consumption expenditure, interest payments, and transfer payments. They put some of it into personal savings.
To create national income accounts, the Bureau of Economic Analysis uses GDP statistics as a base. It must convert the GDP production data into a personal consumption expenditure report. How is this done?
First, production that goes to consumer purchases is separated. This includes things like manufacturers’ shipments. It also includes revenues from utilities and service receipts and securities brokerage commissions.
Second, imports are added. Third, exports and changes in inventory are subtracted. This gives the amount available for domestic consumption. This is allocated among domestic buyers. The allocation is based on trade source data, U.S. Census Bureau data, and household income surveys.
One problem is that GDP is released quarterly, while the Bureau of Economic Analysis estimates personal consumption expenditure each month. The Bureau of Economic Analysis uses the monthly retail sales report to fill in the gaps. Every 10 years, it reviews all its accounts based on the Census data.
Frequently Asked Questions (FAQs)
What is personal consumption expenditure?
Personal consumption expenditure is short for “Personal Consumption Expenditures,” which generally refers to a measure tracked by the Bureau of Economic Analysis that shows how much money consumers in the United States spend on goods and services.
What are some examples of personal consumption expenditure?
Personal consumption expenditure is typically categorized as goods and services. Examples of goods include food, vehicles, and gasoline. Some examples of services are rent, healthcare, and insurance.
Source: https://www.thebalancemoney.com/personal-consumption-expenditures-3306107
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