US consumer spending remains resilient, but weakening cash flow will drag on growth in the second half
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US consumer spending remains resilient, but weakening cash flow will drag on growth in the second half
Goldman Sachs expects that tax factors and nonprofit sector spending supported consumption in the first half, but inflation, energy prices, and weak income will slow real consumption growth to around 1.5% in the second half of 2026.
- Real PCE grew 2.1% year over year, but the six-month annualized growth rate through May was only 1.3%, indicating momentum has already cooled.
- Retail sales remained strong in June, with nominal headline retail sales up 0.2%, core retail sales up 0.5%, and real core retail sales up 0.6%.
- OBBBA-related tax cuts and lower tax payments boosted household income by about $140 billion during the 2026 tax season, but this support is temporary.
- Goldman Sachs expects real consumption to grow at an annualized rate of 1.5% in the second half of 2026, with Q4 2026 year-over-year growth at 1.5%, slightly below the 1.6% consensus forecast.
- The labor market is stabilizing but weakening at the margin, with average monthly job growth expected to reach 43,000 by the end of 2026 and the unemployment rate to rise to 4.4%.
- Household balance sheets remain strong, with the ratio of net worth to disposable income near historical highs, and the savings rate is expected to rise from 3.5% at the end of 2026 to 4.1% at the end of 2027.
Report interpretation
Overview
This report is Goldman Sachs' July 2026 US Consumer Dashboard. The core conclusion is that US consumer spending showed resilience in the first half, but its foundation is uneven. On the spending side, tax policy-related cash flow and nonprofit spending related to the midterm elections provided support, employment remains in a stable range, and household balance sheets are still strong. However, stagnant real disposable income, weaker cash flow among lower-income groups, and rising energy prices and inflation pressures imply that consumer growth will very likely slow in the second half of 2026.
Core views
The report argues that the US consumer has not deteriorated across the board, and near-term consumption data still have support, but risks over the next few quarters are concentrated in cash flow rather than balance sheets. Goldman Sachs expects real spending growth to annualize at only 1.5% in the second half of 2026, with real consumption growth of 1.5% year over year in Q4 2026, slightly below market consensus. On income, real income growth in 2026 is expected to be only 1.0%, with the lowest income quintile growing just 0.4%. On employment, job growth is expected to fall below the level needed to keep unemployment stable, with the unemployment rate rising to 4.4% by year-end. At the same time, household net worth relative to income remains near historical highs, debt service burdens are generally low, but 90+ day delinquencies on credit cards and subprime auto loans remain elevated.
Analysis framework
The report uses the US Consumer Dashboard framework to assess consumption fundamentals across six dimensions: spending, employment, income, wealth, debt, and confidence. It combines indicators such as PCE, retail sales, employment, unemployment rate, real disposable income, savings rate, consumer credit, delinquency rates, UMich consumer sentiment, and Conference Board consumer confidence to judge the sustainability of consumption growth.
Methodology notes
Multidimensional Consumer Dashboard
Measures the condition of US consumers through six indicators—spending, employment, income, wealth, debt, and confidence—with a heatmap showing relative strength based on percentiles since 1980.
Real Personal Consumption Expenditure Growth
Uses year-over-year and six-month annualized real PCE growth to measure consumption momentum; the report notes that year-over-year growth remains healthy, but growth over the past six months has slowed.
Job Growth Needed to Keep Unemployment Stable
Assesses whether the labor market is sufficient to stabilize unemployment by comparing potential job growth with breakeven job growth. The report expects job growth to come in slightly below breakeven.
Cash Flow Excluding Tax Timing Effects
The report distinguishes the timing effects of OBBBA-related tax refunds and tax cuts from ongoing income growth, and argues that the adjusted cash flow outlook for the second half of 2026 is more challenging.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- US consumer-related equitiesConsumer spending remains resilient, but growth is expected to slow in the second half.
- Strengths
- Real PCE year-over-year growth is still 2.1%, real core retail sales grew 0.6% in June, and household balance sheets are strong.
- Weaknesses
- Six-month annualized consumption growth is only 1.3%, real income is weak, and lower-income groups have weaker cash flow.
- Comparison
- Compared with the first half, consumption growth is forecast to be lower in the second half; compared with market consensus, Goldman Sachs' 2026 real consumption forecast is slightly lower.
- Risks
- Inflation, rising energy prices, slower employment growth, and deteriorating consumer cash flow could pressure sales and margins.
- US consumer credit and financial assetsDebt service is generally low, but some credit quality indicators are weak.
- Strengths
- Household leverage and debt service costs remain low, and home equity lending growth has picked up somewhat.
- Weaknesses
- Consumer credit growth is slowing, and 90+ day delinquency rates on credit cards and subprime auto loans remain high relative to history.
- Comparison
- Overall debt levels are healthy, but risks are concentrated in more vulnerable credit subsegments.
- Risks
- If employment and income continue to weaken, delinquency rates may rise further and affect consumer finance risk premiums.
- US rates and macro growth expectationsSlowing consumption and employment will affect growth and policy expectations.
- Strengths
- Consumer balance sheets are strong, and confidence has improved recently, reducing the risk of a sharp downside.
- Weaknesses
- Job growth is expected to fall below breakeven, and the unemployment rate is expected to rise to 4.4%.
- Comparison
- The report presents a moderate slowdown rather than a recession-style cliff.
- Risks
- If cash flow pressure intensifies, the market may lower growth expectations and reprice the rate path.
Key data
- Real PCE Year-over-Year Growth2.1%Through May, still showing consumer resilience.
- Six-Month Annualized Real PCE Growth1.3%Through May, indicating recent consumption momentum is weaker than the year-over-year measure.
- June Headline Retail Sales+0.2%Nominal basis.
- June Core Retail Sales+0.5% nominal, +0.6% realThe retail sales report remains strong.
- Contribution of nonprofit midterm election-related spending to real consumption growth+0.2 percentage pointsThis type of spending is included in official PCE, and its growth over the past year exceeded that of other categories.
- Forecast for real consumption growth in the second half of 20261.5% annualizedGoldman Sachs forecast.
- Forecast for real consumption growth in 20261.5% Q4/Q4Below the 1.6% consensus forecast.
- June job growth57,000The labor market is stable but growth is slowing.
- Three-month average nonfarm payroll growth111,000Still appears strong on the surface, but the report estimates underlying growth at 73,000.
- June unemployment rate4.2%Down 0.1 percentage point from the prior month, but the report expects this to reverse in coming months.
- Forecast unemployment rate at end-20264.4%Job growth is expected to fall below the breakeven level of 50,000 per month.
- OBBBA boost to household income during tax seasonAbout $140 billionFrom higher refunds and lower tax payments.
- Forecast for real income growth in 20261.0% Q4/Q4The lowest income quintile is expected to grow only 0.4%.
- May savings rate3.0%Expected to rise to 3.5% at end-2026 and 4.1% at end-2027.
- Year-over-year growth in consumer credit2.4%Down 0.2 percentage points in May.
- UMich consumer sentiment54.4Up 4.9 points in July.
- Conference Board consumer confidence91.2Up 0.6 points in June.
Impact & implications
For asset allocation, the report points to a US consumer environment in which spending has not collapsed but momentum is slowing. Consumer-related equities and credit assets may still benefit in the short term from resilient nominal sales and strong balance sheets, but pressure on real income, lower-income cash flow, and delinquency rates in the second half may limit valuation upside. At the macro level, if slower consumption and cooling employment materialize, they will affect US growth expectations, the rate path, and the relative performance of defensive sectors.
Risks
- High inflation and rising energy prices are eroding household purchasing power, especially for lower-income households.
- The income boost from OBBBA-related refunds and tax cuts is temporary and may mask cash flow pressure in the second half.
- Job growth is expected to fall below breakeven, and the unemployment rate could rise to 4.4%.
- 90+ day delinquency rates on credit cards and subprime auto loans remain relatively high by historical standards.
- Consumer confidence has improved recently, but remains weak overall and is vulnerable to geopolitical and price shocks.
What to watch
- Whether real PCE and retail sales in the second half of 2026 slow as forecast to around 1.5%.
- Whether real disposable income and cash flow among lower-income groups continue to weaken.
- Whether monthly job growth falls below the breakeven level of about 50,000 per month, and whether the unemployment rate rises to 4.4%.
- Whether the savings rate rebounds from 3.0% to 3.5% by the end of 2026 as forecast.
- Whether credit card and subprime auto loan delinquency rates deteriorate further.
- Whether confidence indicators such as UMich, Conference Board, Morning Consult, and the GS Social Media Economic Sentiment Index can continue to improve.