Key insights
- Goldman Sachs warns of upcoming consumer spending weakness in the US and Europe, despite recent energy market improvements. Factors include slow pass-through of lower wholesale energy prices, seasonal demand peaks in winter, and the end of temporary US tax refund support. The bank projects real cash flow stagnation and estimates a 0.6% drop in consumer spending for every 1% decline in real cash flow from energy shocks. This outlook, coupled with reduced planned large purchases by consumers, suggests potential headwinds for equities.
Investing.com -- Goldman Sachs warned that consumer spending headwinds remain despite recent improvements in energy markets and resilient spending patterns.
The bank's economists noted that while an interim US-Iran peace deal has reduced upside risks to energy prices, several factors point to potential weakness in consumer spending in the coming months. Goldman Sachs oil strategists now expect Brent crude to fall to $80 per barrel in the fourth quarter of 2026, down from a previous forecast of $90.
The bank identified three reasons for concern about real income and consumer spending. First, while gasoline prices rose quickly after the start of the conflict and may decline following the recent interim deal, the transfer of wholesale gas and electricity prices to consumers occurs more slowly.
Second, seasonal spending patterns are expected to increase the impact on income during winter when energy demand reaches its peak, particularly in Europe. Third, large tax refunds in the US dampened the real income decline this spring, but this temporary support has ended and Goldman Sachs expects real cash flow to stagnate on a year-over-year basis in the second half of the year.
Based on historical data, Goldman Sachs estimates that each 1% decline in real cash flow from an energy shock leads to a 0.6% drop in consumer spending after two quarters. The bank's model projects more substantial weakness in the second half of 2026, even with updated energy price forecasts.
Consumer surveys show that developed market consumers plan to make fewer large purchases over the next 6-12 months, according to the bank.