Goldman Sachs US Daily: Consumer Spending Growth to Slow to 1.3%
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Goldman Sachs highlights a notable weakening in US income data, with April real personal disposable income falling 1.1% year-over-year. Real personal income excluding transfer payments declined 1.0%, a magnitude rarely seen outside of recessions. This drop was driven by rising energy prices, tariff pass-through, and slowing wage growth, despite lower effective tax rates from recent tax reforms. While policy distortions in Social Security retroactive payments and farm proprietor income exaggerated the decline, underlying weakness remains. Adjusting for these factors, real income per worker still fell 0.6%.
Thus far, consumption has not slowed proportionally. Extraordinary tax refunds earlier in the year temporarily boosted consumer cash flows, while households absorbed income shocks by lowering the savings rate to 2.6% in April. Even adjusting for potential national accounts measurement issues, the savings rate remains near historical lows, leaving limited room to offset further income weakness.
As the temporary boost from tax refunds fades, Goldman Sachs expects real consumer cash flow growth to decelerate significantly, dropping to 0.3% by the fourth quarter of 2026. Consequently, the firm forecasts real consumer spending growth to slow to 1.3% for the remainder of the year, falling below potential growth and market consensus. Risks include higher oil prices and further labor market deterioration.
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