PCE, Goods versus Services: Any Change?

In an earlier report, we analyzed the changes that have occurred over the years, particularly before and after the Great Recession, between real personal consumption expenditures (PCE) and real retail sales. We showed that there has been a change in the behavior of real retail sales that has diminished its ability to explain the variation in real PCE. Furthermore, we argued that the consumption of services has, today, a more important role in the determination of PCE than what it had before the Great Recession.

In this report, we tackle the task of identifying what sectors of services have gained importance and what sectors of goods have lost importance in how real PCE changes every month. For this, we conducted regression equations for every major component of PCE and looked at changes in the R-squared1 before and after the Great Recession. This analysis allows us to separate those sectors that have gained in importance and those that have lost in importance over time. We used a monthly series of real PCE from January 1999 to January 2015. As was the case for our previous report, we considered three periods. The first period was the complete period (January 1999 to January 2015). The second period went from January 1999 to December 2007, just before the official start of the Great Recession. The third period started in October 2009, the official start of the economic recovery, and ended in January 2015, the last data point available for real retail sales.