Consumer Outlook 'Healthy' As Labor Demand Points To Wage Growth: Goldman Sachs

The consumer outlook for the remainder of 2024 appears to be robust as a firm labor demand indicates higher wages that will lead to more disposable personal income, according to a Goldman Sachs analyst.

Despite a higher unemployment rate in April, there is a surplus of 1.6 million jobs in the U.S. that is expected to result in higher wages and greater consumer spending, Kate McShane noted.

“Our economists view 2024 consumer outlook as healthy, with the employment backdrop supportive of robust wage growth led DPI (disposable personal income) growth forecast for the year,” she wrote in a note on Wednesday.

She said the employment scenario boosts discretionary income and spending for consumers, expecting DPI to grow 4.7% this year, versus Goldman Sachs’ prior 4.8% outlook for 2024.

Also read: US Inflation Eases More Than Expected In May, Boosts 2024 Rate Cut Prospects Ahead Of Wednesday’s Fed Meeting

This will translate into discretionary cash income reaching 3.4%, down from a prior expectation of 3.7% as of December 2023, as Goldman Sachs expects lower mortgage equity withdrawals and borrowings that will prompt 4% growth in household income, McShane wrote. That outlook is down from a 4.2% growth expected in December 2023.

Still, financial obligations are expected to grow 8.5% this year, while essential spending is set to increase 2.9%.

“Having said that, we note that risks around cashflow/spending are skewed to the downside given it is unlikely the saving rate declines much more from here, and there are no upside income/spending catalysts in the pipeline,” she added.

McShane noted that Goldman Sachs expects the lower-income consumer to cut back on purchases this year as a result of inflation, but the higher-income consumer is expected to spend more, according to the bank’s HundredX analysis.

McShane recommends stocks that are “insulated from risk factors” due to low-price discipline, volume growth drivers such as innovation and strong revenue growth, such as Coca-Cola KO, Colgate-Palmolive CL, Sprouts Farmers Market SFM, SharkNinja SN and Royal Caribbean Group RCL.

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