Thursday, August 14, 2014

Personal Consumption Expenditures: A new tool to add to your economic-analysis repertoire

Lecia Langston, Senior Economist

Economists evaluating a local economy like to track the indicators that provide vital insights into the business cycle. Luckily for us, the U.S. Bureau of Economic Analysis has just released prototype estimates of personal consumption expenditures for states, a product that until now was only available at the United States level.

In the national arena, this particular data piece is a subset of the national income and product accounts that measure gross domestic product. According to Mark Doms, Under Secretary of Commerce for Economic Affairs, “The creation of these new economic statistics makes clear how much consumers in each state are spending, as well as what they are buying, in a geographically detailed picture that didn't exist before."

What exactly are personal consumption expenditures (PCE)? They represent actual and imputed household consumer spending for goods and services. In other words, PCE is a measure of goods and services consumed by individuals (as opposed to businesses or governments). It accounts for roughly two-thirds of gross domestic product and is obviously the primary engine of the country’s economic growth. Yeah, it’s important.

Previously, this data item has only been available for the United States in total. However, the Bureau of Economic Analysis has just provided state-level estimates for review and comment. The results are certainly interesting.

There is a caveat though. As with much of the Bureau’s local-level information, personal expenditure estimates for states are rather dated. It takes a significant amount of time to collect and tabulate the information. The most current estimates are for 2012. However, as the past performance of the economy is a relatively good predictor of future patterns, we can learn a lot from the trends of the previous business cycle.

A few interesting points from the recently-distributed personal consumption expenditures for Utah follow:

• With a 5.5-percent gain in personal consumption expenditures between 2011 and 2012, Utah generated the third fastest growth rate in the nation.

• Utah’s per capita, or per person, personal consumption expenditures ranked relatively low. In 2012, Utah’s figure measured $30,181; only four states showed lower per capita figures. However, just as with per capita personal income, Utah’s figures appear relatively low because of our high proportion of population under the age of 18 years old.

• Following the trend of the business cycle (and the U.S.), both total and per capita personal consumption peaked in 2006 and bottomed out in 2009.

 • While the rate of consumption slowed nationally and in the Rocky Mountain region in 2011, Utah’s total and per capita expenditures’ growth rate actually increased.

 • Consumption of goods felt the brunt of the recessionary spending decline in Utah. While the rate of increase in service expenditures slowed, it remained positive through the recessionary trough.

 • Among the goods-expenditure categories, gasoline and other energy spending showed the most precipitous Utah dip. On the other hand, expenditures on clothing and footwear suffered the least from the business contraction.

 • In the service-expenditure category, health care and housing/utilities spending continued to grow throughout the economic downturn.

 • In 2012, spending on recreational goods and vehicles showed the strongest expansion in expenditures. In addition, spending on goods grew faster than spending on services.

For more information on the Bureau of Economic Analysis’ personal consumption expenditures for states, click here.

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