Goldman Sachs Forecasts an Upswing in Household Income

Household income is poised to reverse an ongoing decline, according to experts at investment bank Goldman Sachs (GS). The forecast looks at various economic trends that suggest income will rise as soon as the end of the year.

How did experts come to this conclusion? Will the bright household income forecast prove to be an accurate prediction?

Research analysts at Goldman Sachs say U.S. households will get a boost in income right after Christmas.

So far this year, household income has endured a $600 (or 4.2 percent) decline in discretionary cash flow. That marks the first time this trend has occurred since the 2008 financial crisis that led to a strong recession. According to the forecasts, healthier wages are coming and will help drive increased cash flow stability for 2023.

Meanwhile, Moody’s Analytics’ Mark Zandi reiterated this position and said, “Cash flow got hit during 2022 but it’s coming back, and cash flow is what drives spending.” He added, “Businesses are unlikely to cut jobs because they know their biggest problem is finding workers.”

Talks of a recession have been going on for months. Many experts say it’s imminent while others aren’t so sure. Goldman Sachs has a relatively optimistic outlook and thinks “the U.S. economy has about a one in three chance of slipping into a recession by the middle of 2023.”

What the firm seems more sure about is the matter of increased wages. Seeing this come to life could mean more discretionary spending for consumers. However, it’s important to remember that hyperinflation is eating into cash value at a rapid pace (with some goods and services inflated well above average rates). Assuming inflation continues to cool (it quelled from a 12-month rate of 9.1 percent in June to 8.5 percent in July), higher wages could go further.

Then there’s the issue of saving during a recession. If an official recession does come, consumers will be more likely to save money than spend it. In that case, discretionary spending wouldn’t increase.

In theory, discretionary spending would increase in response to heightened wages. Analysts will be able to look at the retail industry for a decent perspective of spending trends. It will be important to look beyond dollar value as inflation can make that a moot point.

Inflation-adjusted consumer spending growth statistics are important here. For H1 of 2022, inflation-adjusted consumer spending growth hit just 1.5 percent, down from 12 percent YoY.

Whatever the case, Goldman Sachs experts are optimistic. Consumer goods analyst for the firm Jason English said, “If we’re cleared by the holidays, we’re in much better shape going forward than the market is currently estimating.”

This could save a lot of smaller consumer-facing companies who are experiencing hiccups in demand amid slowed retail spending.

For households, the reality could be more padding to live a (hopefully) comfortable life. Ultimately, variables could change the forecast as we get closer to 2023.