Goldman Sachs warned that the resilience of US consumer spending will face a tough test in the second half of the year, despite strong sales performance by retailers in the second quarter. Second-quarter sales for the median S&P 500 consumer discretionary companies rose 5.9% while consumer staples rose 3.9%, supported by a cash injection from tax refunds.
Goldman Sachs Chief Economist Jan Hatzius projected that real consumer spending growth would slow to 1% to 1.5% in the second half as households' cash flows eased. The spending surge at the start of the year was seen as a temporary side effect that is now starting to wear off, as reflected in the recent July retail sales decline.
In the second quarter, the US economy as a whole grew at an annualized rate of just 1.5%, down from 2.1% in the first quarter. However, consumer spending surged 3.2% and acted as the main driver of domestic demand, driven mainly by purchases of pharmaceuticals, motor vehicles, and food services.
Consumer goods giants such as Procter & Gamble (P&G) reported a significant spending gap between high and low-income earners. Lower-income consumers living paycheck to paycheck are increasingly cautious and tightening their daily spending as the cost of living continues to pressure.
The real test of this spending slowdown thesis will come in the quarterly financial reports and forecasts of major US retailers this week, including Walmart, Target, Home Depot, and Lowe’s. Deutsche Bank analysts expect incremental sales growth to be harder to come by in an increasingly cautious consumer environment.
