Goldman Sachs chief economist Jan Hatzius admits American’s excess savings are “clearly” lower now than they were a year ago.
But that doesn’t mean consumer spending is poised for a total slowdown.
“[Excess savings are] less necessary to get the consumer to continue growing consumption,” Hatzius explained during a media roundtable on Tuesday.
In 2022, Hatzius went on to explain, consumers needed their excess savings because real disposable income — the income consumers see after adjusting for inflation — was negative last year due to rising prices for goods and services. Real disposable income fell 6% from the year prior during 2022, the largest drop since at least 1960, per data from the St. Louis Federal Reserve.
But as inflation has moved down significantly in 2023, real disposable income has rebounded. It is pacing for 4% growth this year and nearly 3% next year, per Goldman.
“[The real disposable savings rebound] should be sufficient to keep consumption growing at an OK, pace, 2% or so,” Hatzius said. “Nothing super rapid, but moderate growth would be my expectation, even with reduced excess savings.”
Recent data has shown a cooling — though still historically tight — labor market, and inflation continuing to decelerate. Hatzius believes there will be “more of the same” in 2024.
Hatzius sees no “material” increase in unemployment across all the economies covered by Goldman including the US. He also adds that “core” readings of inflation, which strip out the volatile food and energy categories, should reach 2% to 2.5% by the end of 2024.
Additionally, Goldman sees just a 15% chance of a recession next year.
“We basically don’t expect the last mile of disinflation to be particularly hard,” Hatzius said. “And so that’s one reason why our the title of our outlook report this year, is ‘The Hard Part Is Over,’ because we think the hard part of disinflation without recession really has been what we’ve seen over the last year or year and a half… We think we’re very well advanced.”
Josh Schafer is a reporter for Yahoo Finance.
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