Global Views They're Not Hiking

Economics Research 16 August 2026 | 11:59AM EDT

Global Views: They’re Not Hiking

1. Although the drop in US retail sales in July partially reflects payback for an Jan Hatzius | earlier-than-usual Amazon Prime day, the revised path now looks much more Goldman Sachs & Co. LLC

consistent with our view that the strength of real consumer spending in the spring was the temporary byproduct of the tax refund surge, and that real spending growth will slow to 1-1.5% in H2 as real cash flow stagnates. Moreover, the risks to this forecast are on the downside because the Strait of Hormuz remains closed and a renewed spike in gasoline prices would further hurt consumers, especially those with lower and middle incomes. Strong business investment and the lagged effects from earlier large equity wealth gains should continue to support overall GDP growth, but we feel comfortable with our view that the pace will remain slightly below potential.

Exhibit 1: Weakness in Real Income and Cash Flow Weighs on Consumption

Percent, year ago Adjusted Income Forecasts* Percent, year ago 3.0 3.0 Real Disposable Personal Income 2.5 Real Disposable Personal Cash Flow** 2.5

-1.0 -1.0 Jun-25 Sep-25 Dec-25 Mar-26 Jun-26 Sep-26 Dec-26 * Both series adjusted for AI-related mismeasurement **Real DPI with taxes converted from accrual to cash.

Source: Goldman Sachs Global Investment Research

2. With nonfarm payrolls and household employment down on the month, our estimate of underlying trend job growth slowed further to just 5k in July. Since this is below our estimate of breakeven job growth of 50k, similar numbers in coming months would probably reverse some of the decline in the unemployment rate from 4.5% in December to 4.1% in July. We think this decline deserves less weight than it normally would because it has been driven by lower labor force participation, not higher employment. This is visible not only in the headline employment/population ratio (whose sharp decline is partly driven by changes in the age structure of the population) but to some degree also in a composition-adjusted version that holds the age structure constant over time. The continued weakness in wage growth also argues against the notion that the labor market is tightening.

Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to

Exhibit 2: The Labor Market Is Not Tightening, Despite Lower Unemployment Thousands per month Thousands per month Percent Employment/Population Ratio Percent 250 Underlying Trend Job Growth, GS Estimate* Breakeven Rate, GS Estimate

Headline 58.5 Composition-adjusted**

- Jan-24 Jul-24 Jan-25 Jul-25 Jan-26 Jul- * We estimate underlying trend job growth as 0.75*3-month average payroll growth + **Holding each sex/age share constant at its 2024 level. 0.25*9-month average household employment growth; see our report "How to Read the Employment Report."

Source: US Bureau of Labor Statistics, Haver Analytics, Goldman Sachs Global Investment Research

3. The US inflation news has improved meaningfully in the past two months. Following a 0.13% increase in June, core PCE is on track for 0.20% in July, with more than half of this gain coming from portfolio management services. That category is not only poorly measured and defined—most people don’t view paying a constant percentage fee on a growing portfolio as a price increase—but will also get revised repeatedly in coming months, with a large downward revision coming at the end of September. With other temporary inflation drivers such as tariffs, software/accessories, and energy likely to subside as well—some soon, others later—we continue to expect core PCE inflation to fall to near 2% in 2027.

Exhibit 3: The Impact of Temporary Inflation Drivers Such as Tariffs, Software, and Energy on Year-on-Year Core PCE Inflation Should Improve Sharply Over the Next Year Percentage points Effects of Tariffs, Percentage points Percentage points Effects of Tariffs, Percentage points 0.20 Energy Prices, and Software Prices on 0.20 1.6 Energy Prices, and Software Prices on 1.6 Monthly Core PCE Inflation…