Goldman Sachs Warns US Consumption Slowdown Imminent, Retail Giants Earnings Season to Be Key Test

Goldman Sachs economists led by Jan Hatzius have issued a warning about an imminent U.S. consumption slowdown, particularly in the second half of this year. According to their report, the median sales growth for non-essential consumer goods companies within the S&P 500 was 5.9% year-over-year in the second quarter, while essential consumer goods companies saw a 3.9% increase. However, these strong performances were largely driven by larger-than-expected tax refunds.

The Hatzius team expects real consumption growth to slow down to 1-1.5% in the second half of this year, which is significantly lower than the abnormally high pace seen earlier in the spring. This slowdown is partly attributed to technical factors such as Prime Day being moved up to June and excess tax refunds pulling forward consumption.

The upcoming earnings season for retail giants like Walmart (WMT) and Target (TGT) will be crucial in determining whether the U.S. economy can continue on its path of a 'soft landing' rather than a hard landing. Deutsche Bank analysts have noted that achieving above-expectation sales growth will become increasingly difficult against a backdrop of cautious consumer sentiment and potentially more frequent promotional activities.

Meanwhile, recent data has shown a triple cooling effect on retail, employment, and inflation, which is reducing the likelihood of hawkish rate hikes by the Federal Reserve. July's CPI rose only 0.1% month-over-month, core CPI increased by 0.2%, and year-over-year core inflation fell to 2.5%. The probability of a September rate hike priced by CME has fallen to about 33%, down from 51.2% a month earlier.