Goldman Sachs Forecasts Strong Consumer Spending in 2025
Goldman Sachs has released a bullish forecast for consumer spending in 2025, predicting that consumer sentiment and expenditure will remain robust. The investment bank projects a 5.2% growth in discretionary cash flow for US consumers in 2025, surpassing the 4.4% increase expected in 2024.
This positive outlook is anticipated to bolster both discretionary stocks and consumer staples, with the former expected to outperform. The projected growth in discretionary cash flow is attributed to reasonable inflation levels and falling interest rates.
While disposable income growth is expected to slow slightly to 4.9% from 5.8% in 2024, it remains strong by historical standards. Goldman Sachs notes that aggregate household balance sheets continue to be healthy, with high net worth relative to disposable personal income and substantial home equity as a share of GDP.
Recent surveys indicate improving consumer sentiment, particularly among lower-income consumers. The 2024 holiday spending survey reveals increased spending intentions and moderating perceptions of prices and promotional importance compared to the previous year.
In the stock market, discretionary stocks are predicted to see significant gains and outperform the defensive consumer staples sector. Companies like Target, Bath & Body Works, and DICK’S Sporting Goods are positioned for growth, while Walmart is expected to benefit from supply chain investments and alternative revenue streams.
However, some companies face potential challenges. Autozone and RH may encounter difficulties due to competition and tariff risks.
The consumer staples sector, despite recent outflows, is showing signs of improvement. Emerging tailwinds from volume and mix improvements, along with potential pricing leverage due to reaccelerating input costs, could benefit the sector.
Investors are advised to watch market share gainers like Philip Morris and Monster Beverage Corporation, while exercising caution with companies such as Kraft Heinz, Hershey, and Clorox, which face competition from private labels and diminishing returns on promotions.
As the economic landscape continues to evolve, these projections suggest a positive outlook for consumer-related sectors in 2025, with discretionary spending leading the way.
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