Goldman’s chief economist Jan Hatzius — who has been optimistic that the US economy will turn a corner in 2013 — is the latest to talk more about signs of a soft patch.
In a new note, he talks about ‘A Consumption Setback.’
Real consumer spending growth in the first quarter is tracking 2-1/2%, much stronger than we had expected at the start of the year. But the March retail sales and the dip in consumer sentiment in early April suggest that consumption is entering the second quarter on a weak note. The personal saving rate also looks somewhat low relative to our model, which is based on household wealth, bank lending standards, and labour market conditions.
The most plausible explanation is that we are seeing a delayed impact from the January payroll tax hike. If this is the right explanation, we could see a couple of quarters of weaker consumption growth in the 1%-2% range, despite the increase in household wealth and the more recent decline in gasoline prices. Combined with the hit from the sequester to federal spending, this would probably make it difficult for real GDP to grow much more than 2%, even if homebuilding and business investment continue to perform well.
Still, Hatzius remains optimistic about growth and even US consumption growth in the latter half of the year, as the benefits of America’s low level of debt service and deleveraging kick in.