Consumer Spending Slows Down Amid Tax Refund Drought

Goldman Sachs is warning that a consumer slowdown could be looming over the US economy. The Wall Street bank pointed to several factors, including fading tailwinds from springtime tax refunds and the lingering effects of higher energy prices. Brent oil prices have risen by around 22% since before the start of the Iran war.

The bank estimates that real consumer spending growth could slow to as low as 1% in the second half of this year, down from 2.5% annual growth recorded in June. This would mark the slowest pace of spending since early 2021.

American consumers have already shown signs of tightening their wallets, with retail sales dropping 0.6% in July. Goldman Sachs attributed this drop to an 'earlier-than-usual' Amazon Prime Day, which was held in June instead of July.

The bank's senior economist, Ronnie Walker, wrote that the strength of real consumer spending in the spring was likely due to a tax refund surge. He expects real cash flow to stagnate, leading to slower growth in consumer spending.