The consumer is spending enough money to continue to prop up the economy, however, if a small ripple in the economy…
Goldman Sachs CEO David Solomon told Bloomberg that he sees only a small risk of recession. Solomon claims that the United States consumer is spending enough money to continue to prop up the economy.
While consumer spending continues to grow at a faster pace than wages, it may look good on the surface. However, if a small ripple in the economy causes some pain for the average consumer, they are going to be stuck with mountains of debt during a time when income will wane. Solomon says the chances of this happening are “not significant.”
“I’ve said that I still think the chance of a U.S. recession between now and the election is small — in the distributions of outcomes, it’s a smaller outcome — I said roughly 25%,” Solomon told Bloomberg Television in Berlin on Tuesday. “Nine months ago I probably would have told you it was very small, kind of 15%,” he said. “So I do think the uncertainty has increased a little bit some of the risk,” but economic data and earnings momentum have held up well and American consumers are “still very healthy,” he said.
Recent report have shown that the U.S. consumer is losing confidence in the economy however they are continuing to spend money and pile up debt. These numbers are contradictory and should be enough of a red flag. Another brutally honest truth is that the consumer can not prop up the economy forever. Something will eventually give.
Other data indicates that the manufacturing industry is already in a recession and the nation’s factory sector isn’t faring as well, Solomon said. “There’s no question, the industrial, the manufacturing part of the economy is slower, but when you look at the whole package, I think the chance of a recession in the near term is not significant,” he said.
Solomon points to the trade war as another segment of uncertainty in the economy. “If you’re watching what’s coming out of the administration in Washington, if you are listening what’s coming out of China, I think it feels like both are incentivized to have some sort of a phase one deal, so there looks like some progress, some movement forward,” Solomon said. “It feels like we’re going to have something constructive happen.”