Gathering a Complete Picture of the US Consumer: How PCE Data Illuminates Spending

Despite recent headlines raising alarms about the economy, the underlying data presents a more resilient story:

• The economy is not dropping off a cliff. 

• Retail Sales are inching higher; inflation-adjusted PCE metrics corroborate a positive picture for spending.

• There are no red flags from employment and income levels.

The US consumer is feeling the heat from previous bouts of inflation, but they are chugging along regardless. Annual Retail Sales numbers are inching higher as consumers continue to demonstrate resilience.

Besides tracking Retail Sales data, there are two additional factors to consider if you are interested in consumer spending patterns: (1) Retail Sales data does not include purchases from non-retail outlets like educational institutions, nonprofits, financial institutions, housing costs, healthcare providers, and direct-to-consumer sellers; and (2) spending on goods is less than one-third of the consumer spending picture. Almost 69% of consumer spending is related to services.

If we expand our view to include these categories, the Personal Consumption Expenditures (PCE) component of GDP corroborates the positive trajectory for spending suggested by the Retail Sales numbers. Inflation-adjusted PCE in the second quarter of 2025 was 2.4% above the same period one year ago.

Despite fears sparked by the July jobs report, these results do not signal that the economy is dropping off a cliff. That is not to say there are not real challenges ahead, and yes, overall PCE growth has ticked down, but these results should ease some concerns whipped up by recent headlines.

What to Consider Going Forward

We expect GDP to rise in the coming years. Consumers drive 69% of economic output, and they are likely to maintain spending in most categories, supported by high employment and rising real incomes. Lead with optimism in the current uncertain landscape and consider the following questions:

• If your firm is impacted by downstream markets, have you evaluated your firm’s performance relative to relevant personal consumption patterns on both a dollar and inflation-adjusted basis?
•  Are you able to cut out the noise of the news cycle and focus on what a shift in the leading indicators means for your business?
•  Are you planning half a business cycle ahead? Doing so allows you to buy when others are selling and sell when others are buying. Markets typically react to conditions late. Resist the urge to follow the crowd and position yourself to act at a more economically strategic moment.

There are likely to be relative winners and losers, as some categories of Personal Consumption Expenditures are more or less prone to demand destruction due to interest rate and inflationary pressures. If you would like a more detailed look into relevant PCE markets relevant to your business, reach out to us.