LIVE MARKETS-Goldman sees consumer resilience in the face of soaring oil 

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GOLDMAN SEES CONSUMER RESILIENCE IN THE FACE OF SOARING OIL

After eight months of war in the Middle East, the US consumer has proven more resilient than was expected when the war with Iran began, according to economists at Goldman Sachs.

They estimate that consumer spending will rise 2.5% in 2026 on a Q4/Q4 basis, driven largely by strong growth in the second and third quarters, "when boosts from tax refunds and equity market gains more than offset the drag from higher energy prices."

They note that the two key drivers of spending growth — real income growth and household wealth — should both be supportive next year. On the income side, however, they note that higher inflation has not been matched by an offsetting pickup in wage growth, which "has made 2026 a challenging year."

So they now forecast real disposable income growth of just 1.4% but say that they expect real income growth to rise to 2.3% in 2027.

"This reflects significant disinflation as the impulses from tariffs, energy prices, and AI-related prices fade, as well as boosts from higher net interest income and cost-of-living adjustments (COLAs) to Social Security and other transfers," they said.

And the economists say that they expect real income growth to be more evenly distributed in 2027.

In 2026, they note that "benefit cuts, softer nominal wage growth, and greater exposure to higher gasoline prices weighed disproportionately on lower-income households, while middle- and higher-income households held up better because they captured most of the boost from last year's OBBBA fiscal package," referring to US President Donald Trump's One Big Beautiful Bill Act, which was signed into law in July 2025.

But the economists say that they see the gap narrowing as the effects fade and as cost-of-living adjustments and "a likely partial reversal of recent benefit cuts lift income growth most at the low end."

Meanwhile, on the balance-sheet side, they see high household wealth continuing to support spending and provide a buffer against unexpected income shocks.

The economists note that they are "not too concerned" about a relatively low measured 3.8% saving rate. This is partly because they estimate that it is closer to 5% after including "timelier source data." They also note that "a low saving rate is unsurprising when strong balance sheets and a stable labor market limit the need for saving."

While they note that higher interest rates will be a headwind, they write that they expect weaker credit-financed demand for durables will "subtract only modestly from consumption growth in 2027."

So with all that they estimate that consumer spending will rise at a near-potential 2.2% pace in 2027.

"We look for a softer start to the year as higher rates weigh on durables demand, energy prices stay elevated, and nonprofit spending declines after the midterm elections, followed by a pickup as inflation pressures abate and tax refunds and the reversal of benefit cuts turn the fiscal impulse modestly positive," they wrote.

Also, the economists see "some downside risk from a fading wealth effect." For example, they estimate that the wealth effect added over 0.4 percentage points to spending growth in 2026 but that this boost would drop to about half as much next year and "could weigh on spending if AI-related stocks continue to decline."

(Sinéad Carew)

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