July Consumer Dashboard

Our colleagues in Goldman Sachs Research keep a close eye on the welfare of the American consumer in good economic times and bad. So how are we doing at the midpoint of 2023?

Since last August, our Research colleagues have been predicting that consumer spending would be more resilient than most had expected. This was based on their view that we’d be seeing more money coming in – with personal income growth accelerating into 2023 – and moderating inflation in essential categories like food and energy.

This has played out, but consumers are starting to save more as other factors weigh in.

Income & inflows

Many consumers are seeing larger numbers in their checks. So far in 2023, disposable personal income (DPI), or after-tax income, grew almost 8% in the first quarter on a year-over-year basis, and all-in, our economists continue to expect 8% DPI growth in 2023 following flattish levels in 2022.

This should translate into growth in discretionary cash inflow to consumers, although less than our Research analysts originally expected. Their more moderate forecast comes as consumers are borrowing less against their home equity and taking on less debt in general, probably due to rising interest rates.

Debt

The level of consumer credit fell sharply in the first quarter of 2023 but has seen a slight uptick more recently. The household debt-to income ratio remains healthy, at near-pre-COVID levels.

Savings

After a post-COVID period during which consumers were drawing down their accumulated savings, the personal savings rate (as a percentage of income) has ticked up in the past couple of quarters. Our Research colleagues expect it to build through the year and forecast a 5% savings rate for 2023.

Consumer confidence

According to the University of Michigan’s Surveys of Consumers, consumer sentiment slid 7% in May as we worried about the path of the economy. This erased nearly half of the gains made since last June’s all-time low. However, with the resolution of the debt crisis and softening inflation, consumer sentiment rebounded partially in June.

Spending

So why have our Research colleagues tempered their enthusiasm about consumer spending now? They believe higher interest rates are taking a toll in three main ways:

• Lower mortgage equity withdrawals mean less cash to spend.
• Higher debt payments – including renewed student loan repayments – also leave us with less cash to spend in stores.
• Consumers are now allocating more of their money to savings rather than spending.

In addition, relatively weak consumer sentiment, combined with abating growth in net worth, could further motivate us to save more and spend less this year.