Goldman Sachs economists are warning of a potential slowdown in U.S. consumer spending in the latter half of the year. This anticipated weakening is attributed to the fading impact of unexpectedly large tax refunds that supported economic activity earlier this year.
In the second quarter, U.S. consumers received nearly $100 billion more than anticipated in tax refunds. This significant, albeit temporary, influx of funds provided a boost to household spending and bolstered consumer activity. However, this one-off stimulus is now diminishing. Additionally, excess savings accumulated by households during the pandemic are largely depleted for many, and the upcoming resumption of student loan repayments is expected to add further financial pressure on consumers.
As a result, Goldman Sachs anticipates a sharp slowdown in real disposable personal income growth in the coming months. This projected weakening in consumer activity raises concerns about overall economic growth and could challenge the optimistic outlook for a “soft landing,” where inflation cools without a recession. While some market observers maintain a more positive view, skepticism regarding the economy’s resilience remains among others.
The increasing concern over consumer spending could lead to caution in financial markets, particularly for companies reliant on consumer purchases. Shares of discretionary consumer goods firms, such as retailers and restaurants, might face downward pressure. Broader economic uncertainty stemming from a potential consumer pullback could also dampen investor sentiment across various asset classes, leading to increased market volatility.
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