US headline Personal Consumption Expenditure (PCE) growth in real terms has been on a declining trend from late last year. Overall and core goods consumption (latter excluding food and energy), despite the drop in May, have been relatively more buoyant. However, spending on services (69% share in total spending) fell from 3.3% y/y in September 2024 to 1.8% in May 2025 (Figure 1).
The fall in services consumption growth, in turn, has been primarily due to fall in the more cyclical or discretionary services items. Growth in transportation, accommodation, recreation and food services have all been on a moderating trend. Figure 2 below depicts a weighted average of the cyclical/discretionary items (~36% weight within Services PCE), which is clearly easing. The less cyclical ones are more buoyant as it includes housing & household utilities, household maintenance, education services, communication, healthcare, etc. which are more rigid by nature.
Recent quantity and timing of goods consumption has been impacted by higher tariffs. Services consumption is less impacted, although not insulated from indirect effects. Continued weaker services consumption growth, driven by discretionary items, points to moderating health of the US households.
Source for charts: CEIC, Bandhan MF Research. Note: PCE – Personal Consumption Expenditure.
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