September 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 as the leaves start to turn in 2023?

Research says they see a healthy consumer who’s still spending robustly. Here’s their analysis.

Spending

We’re still in the stores spending money. Real consumer spending (adjusted for inflation) grew at a strong pace through July (3.0% year over year). More recent data was also robust, as nominal (in today’s dollars) retail sales increased by 0.6% month over month in August.

In all, our economists are tracking a healthy pace of spending growth in the third quarter (3.3% annualized). Although they expect spending to slow in the fourth quarter due to the restart of student loan payments, they remain confident real spending will rise 2.4% in 2023 and 1.9% in 2024 (Q4 over Q4).

Employment

The labor market is rebalancing. It’s still relatively tight even though the unemployment rate ticked up to 3.8% in August, as more people became active participants in the workforce. Job growth is decelerating, but layoff rates are still low relative to the historical average. The jobs-workers gap, while it has declined significantly, still sits around 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 isn’t growing as fast as it was (remember the 7.7% pace in February?) The July pace of growth was a modest 1.0% (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.

The excess savings accumulated during the pandemic probably isn’t providing a significant boost to spending at this point but could still be helping families hit with financial challenges.

The personal savings rate dropped to 3.5% in July, but our colleagues expect it to rebound to 4% by end-2023 and to over 5% by end-2024.

Debt

We’re not as eager to borrow as we’ve been. Consumer credit growth has slowed significantly to 4.9% year over year, after extremely fast expansion in 2022 and early 2023.

This reticence seems to be serving us well. Credit card delinquency rates, household leverage and debt servicing costs remain low by historical standards.

Consumer confidence

The University of Michigan’s Consumer Sentiment Index and the Conference Board's Consumer Confidence Index both declined in August, suggesting that consumers are still feeling uncertain in today’s economic climate. However, consumer sentiment has risen significantly from its cycle low, especially among higher-income households.

All in all, rumors of the declining financial health of the American consumer seem to be disputed by the data. Yes, we’re a bit worried about those persistent rising prices and the volatile markets, but we remain in a strong position by almost all measures.