October 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 just two months before the end of the year?

Research says they see a healthy consumer and strong spending momentum. Here’s their analysis.

Spending

Consumer spending is climbing slightly less quickly but still shows vigor. Real consumer spending growth (adjusted for inflation) slowed in August but maintained a healthy pace (2.3% year over year). More recent data was also robust. In spite of an expected drag from the restart of student loan payments, nominal (in today’s dollars) retail sales increased by 0.7% month over month in September.

In all, our economists continue to track a robust pace of spending growth in the third quarter (3.1% annualized). Although they expect spending to slow in the fourth quarter as student loan payments restart, they remain confident real spending will rise 2.4% in 2023 and 1.9% in 2024 (Q4 over Q4).

Employment

The labor market continues to rebalance, and the unemployment rate remains unchanged at 3.8% in September. However, workers continue to benefit from a tight labor market. An increase of 336,000 jobs in September reflects continued gains in understaffed sectors like leisure, healthcare and government. Layoff rates are still low relative to the historical average. The jobs-workers gap, while it has declined significantly, still sits at over 2 million. That’s how many more open jobs there are than unemployed workers seeking to fill them.

All in all, Research expects the labor market will remain relatively tight and the employment rate will remain broadly stable at 3.6% at year-end 2023 and year-end 2024.

Income

Real disposable income growth slowed in July (-1.7% 3-month average annualized), partly driven down by declining Medicare payments following the end of pandemic-related eligibility expansion.

However, our colleagues forecast that continued job gains, positive real wage growth and rising interest income will cause real income growth to accelerate again. They continue to expect real income to grow by almost 4% in 2023 and 3% in 2024 (Q4/Q4 basis), across all income levels.

Wealth

Household balance sheets remain strong. The net worth-to-disposable personal income ratio remains near its all-time high. But the excess savings accumulated during the pandemic probably isn’t an important factor in spending levels anymore.

The personal savings rate was still under 4% in August, but our colleagues expect it to rebound to 5.2% by end of 2023 and to 6.4% by end of 2024.

Debt

We’re increasingly less eager to borrow. Consumer credit growth has slowed significantly to 4.0% year over year, after extremely fast expansion in 2022 and early 2023.

This reticence seems to be serving us well overall. Credit card delinquency rates, household leverage and debt servicing costs remain low by historical standards. However, there has been a noteworthy uptick in subprime auto loan delinquencies.

Consumer confidence

The University of Michigan’s Consumer Sentiment Index fell in its preliminary October report, and the Conference Board's Consumer Confidence Index declined in September, suggesting that consumers are still feeling uncertain in today’s economic climate. However, other consumer sentiment data that measures and reports more frequently looks somewhat more optimistic.

So is the American consumer still worried by the state of the economy? It seems so. But when it comes to our overall financial health, those worries don’t seem well supported by the data or by our spending levels. We remain in a strong position by almost all measures.