Goldman Sachs Sees US Consumer Spending Growth Slowing to 1-1.5%

Goldman Sachs economists are warning that American consumer spending growth may be nearing its limits. In a note to clients, Goldman Sachs chief economist Jan Hatzius laid out the case for a deceleration in consumer spending growth. Real consumer spending growth is projected to slow to an annualized pace of 1% to 1.5% in the second half of the year.

The strength in consumer spending was largely driven by tax refunds that came in above plan, but this boost is now fading away. U.S. retail sales fell 0.6% month-over-month in July, a notable reversal from the 0.2% gain recorded in June. The decline reinforced Goldman's view that the underlying trend is weakening as household cash flow stagnates.

The second quarter told a different story with sales at consumer-facing companies rising at a healthy clip. However, this was an anomaly driven by one-time fiscal factors, and the underlying pace of household expenditure growth is reverting toward a more subdued trend that better reflects stagnant real incomes and depleted savings buffers.