Goldman Sachs Forecasts an Upswing in Household Income

Goldman Sachs forecasts household income will trend upwards by the end of the year. Will the predictions prove to be accurate? Here's what we know.

Rachel Curry - Author

Aug. 23 2022, Published 11:57 a.m. ET

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.

Article continues below advertisement
Article continues below advertisement

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

Goldman Sachs says household income will see a boost after Christmas.

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

Article continues below advertisement

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.”

Article continues below advertisement
Article continues below advertisement

Do higher wages mean more discretionary spending?

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.

Article continues below advertisement

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.

Article continues below advertisement

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.

Article continues below advertisement

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.”

Article continues below advertisement
Article continues below advertisement

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.


Latest Personal Finance News and Updates

    Opt-out of personalized ads

    © Copyright 2024 Market Realist. Market Realist is a registered trademark. All Rights Reserved. People may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.