Goldman Sachs warns of impending consumer spending slowdown
Declining tax refunds and high oil prices could halve consumption growth
1Goldman Sachs issues critical warning
Goldman Sachs warned that US consumer spending growth could drop to as low as 1% in the second half of 2026. This is significantly below the 2.5% growth in personal consumption expenditures recorded in June. The bank cited fading effects of spring tax refunds and ongoing pressure from high oil prices as primary reasons for the anticipated slowdown.
2Signs of sharp consumption decline
Retail sales fell 0.6% in July, contrary to the expected 0.1% increase. Goldman Sachs attributed this drop partly to Amazon moving its Prime Day from July to June this year. However, the bank predicts continued pressure on consumers and that the spending slowdown might become persistent in coming months.
3Lowest level since 2021
A 1% growth in consumer spending would mark the lowest level since early 2021, during the post-pandemic recovery period. Brent crude prices have risen 22% since before the Iran war to $89 per barrel, increasing energy costs. This situation creates additional pressure on household expenditures across various sectors.
4Fading impact of tax refunds
Goldman Sachs economist Ronnie Walker noted that spring's consumption surge was a temporary byproduct of the tax refund spike. Walker expects consumer spending growth to slow to 1-1.5% in the second half as real cash flow stagnates. This could weaken consumption, which is a fundamental pillar of economic growth in the US economy.
5Middle-income financial strain
A June survey by Primerica revealed that 71% of middle-income Americans said their income was falling behind living costs, while 46% reported cutting back on everyday spending. The cumulative effects of high inflation in recent years and rising oil prices have significantly eroded consumers' purchasing power.
6Retail sales decline
July retail sales data clearly showed changes in consumer spending behavior. Instead of the expected 0.1% increase, sales fell 0.6%. Goldman Sachs noted that while Amazon's Prime Day date change had some effect, underlying economic pressures were more significant factors in this decline.
7Impact of rising oil prices
Brent crude rising to $89 per barrel increases energy costs across the board. This 22% increase since before the Iran war directly affects consumer spending on transportation, heating, and other essentials, adding to budget pressures. Higher energy prices typically have cascading effects throughout the economy.
8Risk to economic growth
Consumer spending constitutes about 70% of the US economy and is considered the primary driver of economic growth. If Goldman Sachs' predictions prove accurate, the sharp slowdown anticipated in the second half of 2026 could significantly weaken overall economic growth. This situation might also negatively affect corporate profitability and the job market.