Personal Consumption Expenditures (Monthly Change) vs M2 Money Supply (Year-over-Year Change)

What Personal Consumption Expenditures (Monthly Change) measures

Personal Consumption Expenditures measures the monthly change in household spending on goods and services. Consumer spending represents approximately 70% of U.S. GDP, making it the single largest driver of economic activity.

Consumer spending rebounded 0.4% in March after a rare decline in February, suggesting the consumer remains resilient despite falling confidence. For executives, the discrepancy between weak confidence surveys and solid spending data is a puzzle worth watching — consumers may be expressing anxiety while still spending. If spending follows confidence lower, it would be a significant drag on GDP growth.

What M2 Money Supply (Year-over-Year Change) measures

M2 is a measure of the money supply that includes cash, checking deposits, savings deposits, money market funds, and small time deposits. Year-over-year changes in M2 are a leading indicator of inflation and economic activity.

M2 growth has recovered to 3.9% year-over-year after an unprecedented contraction in 2023 (the first in modern history). The normalization of money supply growth supports economic activity without being excessively inflationary. For executives, moderate M2 growth (3-5%) is consistent with a healthy economy — it means enough liquidity to support business activity without fueling the kind of excess that drove 2021-2022 inflation.

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