Can the US consumer stay strong?

Alison: Despite high inflation and rising interest rates, the US consumer has continued to power the global economy. But are cracks now forming in that picture? And what does that mean for investors? I'm Alison Nathan, and this is Goldman Sachs Exchanges. There's no one I'd rather talk to about this than the 3 colleagues sitting with me at the table today.

David Mericle is our chief US economist, and Kate McShane and Bonnie Herzog, co lead coverage at the retail sector. David, Kate, and Bonnie, it's great to have you on the program.

David: Thanks, Allison.

Kate: Thank you. Thank you.

Alison: So, David, given how high inflation and interest rates have been over the last couple of years, I think a lot of people have been somewhat surprised by the strength and resilience of the US consumer. What's your outlook for the consumer at this point? Is it going to give out at some point?

David: Yeah. There certainly has been a lot of pessimism over the course of the last couple of years. There have been concerns about running out of pandemic savings. There have been concerns about the sustainability of the very low saving rate. And there have been concerns about the impact of higher prices on consumer spending power, especially for lower income households.

My take would be most of these concerns are overblown, and that the basic outlook is a lot simpler than that, that many of these concerns overcomplicate things. We are seeing real income grow at a solid pace, led by a strong labor market that is generating good job gains and a healthy pace of wage growth. And we have historically strong household balance sheets, at least in aggregate. And we're seeing further increases in household wealth that should drive a positive wealth effect to consumer spending. That simple formula, strong real income gains plus a positive wealth effect, gave us a robus

We had a big immigration surge. We created about a quarter 1000000 jobs a month. That's not going to be sustainable going forward. But same basic formula, just in watered down form, I think will give us pretty good consumption growth this year as well.

Alison: Let me drill down into a couple of those points though because, as you said, labor market has given a lot of support to the consumer, but we have seen signs that unemployment is rising, and the labor market has begun to weaken a bit. So does that concern you at all?