Here are the latest insights from Goldman Sachs Research on the financial health of the US consumer today.
Consumer spending is showing signs of slowing in the second quarter of the year. Let’s take a deeper look at Goldman Sachs Research’s analysis.
The latest economic data showed that the core PCE price index, which excludes the volatile food and energy categories, rose by 0.08% month over month in May and the year-over-year rate declined to 2.57%, in line with expectations.
Market-based core PCE inflation, which Federal Reserve Chair Jerome Powell has highlighted in recent public appearances, increased 0.15% month over month. This measure includes PCE components that are deflated by either a detailed consumer price index (CPI) or a producer price index (PPI).
Headline prices, which include all categories, declined 0.01% on the month and increased 2.56% from a year earlier.
Consumer spending increased by 0.2% in May, one-tenth below consensus expectations. Real personal spending increased by 0.3% in May, reflecting a 0.6% increase in real goods spending and a 0.1% increase in real services spending.
More recent data have been weaker, as nominal retail sales increased by just 0.1% in May, while spending in prior months was revised down. Core retail sales (excluding autos, gasoline, and building materials) increased by 0.4% in both nominal terms and real terms. Company commentary in the first quarter earnings reports signal a more cautious consumer.
Goldman Sachs Research economists see recent headwinds to consumer spending as mostly driven by backward-looking tax payments and inflation pressures. They continue to forecast above-consensus real spending growth of 2.2% in 2024 in Q4/Q4 terms.
Personal income increased by 0.5% in May, one-tenth above consensus expectations, reflecting a 0.7% increase in nominal wage and salary income.
Nominal disposable income (not adjusted for inflation) increased by 0.4% despite a 0.7% increase in personal taxes.
Employee compensation remains robust. Goldman Sachs Research expects that continued job gains and strong real wage growth will lead to 2.5% real income growth in 2024 on a Q4/Q4 basis. They also anticipate positive income growth for all income quintiles with less divergence across income groups in 2024 than in recent years.
Household balance sheets have strengthened due to asset price increases, especially for older households. The net worth to disposable personal income ratio remains near its all-time high, including among lower-income households.
While cash balances for lower-income households have mostly normalized, Goldman Sachs Research economists anticipate the recent rise in asset prices will provide a 0.3 percentage point boost to spending growth over the next year.
The personal savings rate edged up to 3.9% from an upwardly revised 3.7% in April. Our economists forecast that savings will recover to 4.1% by the end of 2024.
Consumer credit growth has slowed to 1.9% year over year, and household leverage and debt servicing costs remain low by historical standards.
Credit card delinquency rates continued to rise in the first quarter, likely due to a riskier borrower pool, rising interest expenses, and the restart of student loan payments. Some lower-income households may be exhausting their borrowing capacity.
That said, Goldman Sachs Research economists expect delinquency rates to only rise modestly going forward and see limited risks to overall spending, especially since credit growth has accounted for just 9% of spending growth over the last year, barring an unexpected labor market deterioration.
The Conference Board Consumer Confidence Index decreased by 0.9 points to 100.4 in June – roughly in line with consensus expectations – from a slightly downwardly-revised May level. Consumers’ perceived likelihood of a US recession over the next 12 months decreased to 66%.
The University of Michigan’s Consumer Sentiment Index declined to 65.6 in the preliminary June report, well below consensus expectations for an increase. The survey noted that consumers’ perceptions of personal finances declined on rising concerns about persistent inflation combined with slowing wage growth. They noted that overall, consumers’ assessments of the economy changed little from May.
The consumption details in the latest economic report were softer than previous assumptions, but the wholesale inventory accumulation and the pace of real imports were stronger than expected. Goldman Sachs Research economists’ second quarter GDP estimate stands at 1.8% annualized.
This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this website were commissioned and approved by Marcus by Goldman Sachs®, but may not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA, Goldman Sachs & Co. LLC or any of their affiliates, subsidiaries or divisions. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice. This article is not a product of Goldman Sachs Global Investment Research. The information contained in this article does not constitute a recommendation from any Goldman Sachs entity to the recipient, and Goldman Sachs is not providing any financial, economic, legal, investment, accounting, or tax advice through this article or to its recipient. Neither Goldman Sachs nor any of its affiliates makes any representation or warranty, express or implied, as to the accuracy or completeness of the statements or any information contained in this article and any liability therefore (including in respect of direct, indirect, or consequential loss or damage) is expressly disclaimed.
Join our Marcus social media community, where we share content and inspiration to help improve your financial health. See you there!