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Goldman: US Economy Will Need More Than Just Consumers in 2016

Goldman: US Economy Will Need More Than Just Consumers in 2016

Wednesday, 18 November 2015 08:55 AM

In 2015, American consumers put the economy on their backs. Next year, however, the economy will need to be firing on more cylinders in order to keep eating into slack, according to Goldman Sachs.

In three of the past four quarters, real personal consumption expenditures (or PCE) have accounted for more than all of headline economic growth in the United States - that is, net exports, investment, and government spending have been a cumulative drag on those occasions:

"The slowdown in the US economy over the last year could have turned out much worse, if not for support from a traditional source: domestic consumer spending," wrote senior economist Zach Pandl. "Solid consumer spending — underpinned by healthy labor income — has been enough to keep GDP growth above trend."

Such a development isn't novel, but it's far from common. In the past 200 quarters on record, the growth in consumer spending has contributed more than 100 percent of GDP growth in less than one third of instances.

"Although the outlook for consumer spending remains healthy, PCE alone is unlikely to be strong enough to ensure above-trend growth into next year," the economist cautioned.

Goldman Sachs expects the growth in consumer spending to moderate from a range of 3 to 3.5 percent to between 2.5 to 2.75 percent next year.

"As long as labor income growth remains solid, US consumer spending is likely to hold up reasonably well," explained Pandl. "But a few key tailwinds to consumption—the oil price windfall, wealth effects from rising asset prices, and surging vehicle sales—are unlikely to provide much support next year."

Notably, the economist believes real income growth should take a breather in 2016, due in large part to a substantial rebound in inflation as the downward pressure from lower oil prices fades.

So for the United States to fully repair the lingering economic damage from the financial crisis, another segment of the economy needs to step up in short order.

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In 2015, American consumers put the economy on their backs. Next year, however, the economy will need to be firing on more cylinders in order to keep eating into slack, according to Goldman Sachs.
goldman, economy, consumers, spending
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2015-55-18
Wednesday, 18 November 2015 08:55 AM
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