GS analysis: Earnings results suggest consumer slowdown concerns overstated

Investing.com - In an assessment of Q2 corporate earnings released on Sunday, analysts at Goldman Sachs have indicated that concerns about a consumer slowdown are overblown.

Their research, which focused on 93% of the S&P 500 companies that have reported earnings, offers a deep dive into macroeconomic insights drawn from micro-level data.

According to GS analysts, revenue growth is stabilizing at a healthy 2.4% year-over-year pace for the second consecutive quarter. This rate aligns closely with their short-term potential GDP growth estimate, reinforcing that economic activity remains robust.

Contrary to popular investor narratives this earnings season, which suggested a severe decline in consumer health, especially among lower-income groups, Goldman Sachs' findings offer a more optimistic view.

Their sentiment analysis around consumer-related discussions on earnings calls showed improvement, and they note that real income growth remains positive across all income groups. This suggests that the consumer market is more resilient than some bottom-up reports have indicated.

The impact of election uncertainty on capital expenditures (capex) is another key takeaway, with analysts noting that discussions about the upcoming election have started influencing management decisions earlier than in past cycles.

This uncertainty has led some companies, particularly those in financial sectors, government contracting, and those impacted by the Inflation Reduction Act, to delay investment decisions until after the election.

This sentiment has been reflected in a 5 percentage point lower capex growth for companies citing election uncertainty. However, these companies also anticipate a significant post-election acceleration in capex growth.

The labor market, according to the report, appears fully rebalanced, with mentions of labor shortages and costs returning to pre-pandemic levels. While some investors worry that the rebalancing may have gone too far, the Goldman Sachs analysts find that layoff mentions in earnings calls have also retrenched to pre-pandemic levels.

This aligns with the broader labor market signals, such as low initial jobless claims and JOLTS layoff data.

Goldman Sachs analysts also highlighted continued positive real revenue growth, dispelling exaggerated fears regarding the US consumer’s financial health. They also recognize the marginal impact of election uncertainty on business investment and acknowledge a now balanced labor market.