Key Quotes from Goldman 'The Breaks Of The Game' Conversations: Macro, Consumer and AI
Goldman Sachs co-head of Global Economics Joseph Briggs sat down with Tony Pasquariello, Global Head of Hedge Fund Coverage, to walk through growth, the consumer, inflation risk, the labor market, AI, and the Fed.
I found the conversation very interesting.
Below are the themes and quotes that stood out.
TWO ENGINES, ONE DIVERGENCE: CAPEX STILL STRONG WHILE THE CONSUMER IS SET TO STALL
The setup for the back half is a widening split between robust investment and softening household demand.
“There’s two key drivers of the strength in the growth data in the US. The first is the capex story continues to run. We’re forecasting 7.8% business fixed investment this year on a Q basis… driven by the expensing provisions and the one big beautiful bill act, but also the AI infrastructure build out.”
“I think that the activity data is going to be even more bifurcated, where investment is remaining quite robust, but consumer spending softens pretty meaningfully.”
THE CONSUMER: A $140 BILLION SUGAR HIGH THAT HAS NOW RUN ITS COURSE
The resilience in spending was real — but Briggs traces a large piece of it to a one-off tax-season boost that is now gone.
“Now the second driver of growth and the resilience that we’ve seen so far has been the consumer.”
“Real consumer spending is growing 2.1% on a year over year basis, 2.8 or 2.9% on a three month annualized basis.”
“This is in sharp contrast to the slowdown that you might have expected when you started to see energy prices rise and inflation put more pressure on real income and consumer spending.”
“I think it’s a story of the $140 billion that were returned to households during this tax filing season. Now that the temporary boost from outsized tax returns has run its course, I do expect that… consumer spending growth in particular is going to slow pretty materially in the back half of the year.”
“When I’m looking over the next couple quarters… consumer spending softens pretty meaningfully.”
SENTIMENT VS. FUNDAMENTALS: WHY THIS PULLBACK IS DIFFERENT FROM THE LAST FEW YEARS
Weak confidence has been a poor signal for years. The recent leg down worries him more — because it lines up with the data.
“For the last several years, consumer sentiment has been a pretty bad indicator of activity… household finances were in pretty good shape, people just didn’t feel good about high prices.”
“The inflection down that we’ve seen over the last couple of months… it’s not just UMich data. If we look at our Twitter sentiment index, or the daily sentiment measures we get from Morning Consult, they’ve all been pulling back pretty sharply.”
“This is a little bit more worrisome, because it does seem to align with an erosion in fundamentals, namely a sharp pullback in real income growth… real income growth that we just got yesterday had declined by minus 1.1% year over year. That’s a very bad number for household cash flow.”
CASH FLOW IS KING — AND IT LOOKS CHALLENGED
His core framework for spending puts real cash flow at the center, and the impulses have flipped from tailwind to headwind.
“I’ve always been of the view that the number one driver of spending growth is cash flow, and real cash flow looks extremely challenged, given that the positive impulses have run their course, and now we’re left with only higher energy prices set to erode real spending power.”
LABOR MARKET: STABILIZED FOR NOW, BUT THE RISKS SKEW DOWN
The recent data has firmed, yet his forecast leans toward gradual underperformance — with a clear tail risk attached.
“Our estimate of the break even pace is around 50,000 jobs per month… the recent data is broadly in line with that level… it looks like the labor market has stabilized now.”
“I do think that risks around the labor market are skewed towards a more significant deterioration… if that accelerates, then the unemployment rate will rise above the 4.6% level that we’re projecting through the end of the year.”
AI AND JOBS: “I THINK BOTH ARE RIGHT”
On whether AI is hitting employment, Briggs says the answer depends entirely on where you look.
“I think both are right. You can definitely see it if you start looking at specific jobs and sectors that are either highly exposed or where we know that AI is already having an impact… the tech sector, call centers, management consultants, graphic design.”
“Hiring is still increasing, just at a very modest pace in most of these areas. Call center workers is the exception. There, we’ve seen outright declines… on the flip side, legal services are highly exposed, and job growth for lawyers has been running at the fastest pace in years.”
“These are fairly small areas of the overall economy… account for something like 3% of the overall labor market, and we haven’t seen headwinds broaden out beyond these specific sectors yet.”
“Our forecasts assume that six to 7% of workers are displaced — that’s a big number from a macroeconomist point of view — but I suspect it’s probably too early to see those significant hiring headwinds show up this year. It’s probably more of a several year story.”
THE AI ADOPTION TRACKER: STILL EARLY INNINGS
The team’s monthly tracker frames where investment, adoption, and labor impact actually sit today.
“AI adoption, AI labor market, AI investment are occupying 70% of our conversations with clients at this point.”
“In the US, we’re seeing around 380 billion in an annualized pace of investment… adoption continue to trend up… about a four percentage point every six months pace, currently just a touch below 20%.”
“The hiring headwind right now is around 11,000 jobs per month… you can see it, it’s visible, but 11,000 jobs per month is not the main driver of the labor market today.”
THE NEXT AI “SUPERSTARS”: WINNERS WILL BE FOUND OUTSIDE THE TECH STACK
Briggs is agnostic on who wins within tech — but has a clearer view on which operating companies pull ahead.
“I don’t really have a lot of conviction on where in the AI tech stack market power is going to accumulate… you could convince me, depending on which day it is, who’s going to be the ultimate AI tech beneficiaries.”
“If we look within other industries outside of tech, there’s going to be a lot of companies that are able to effectively leverage the tech build out — specifically those that invest in data infrastructure, those that invest in workforce restructuring so that your organization is optimized to deploy AI agents.”
“My guess is that you see a continuation of the within-industry polarization that we’ve seen over the last 30 years or so, where companies that can use tech effectively are going to increasingly become more productive than other companies that have not made the investments.”
THE FED: A HAWKISH DRIFT, BUT THE RISK DISTRIBUTION TILTS DOVISH
Recent commentary has leaned hawkish; Briggs still sees the balance of outcomes skewed toward cuts.
“The Fed commentary recently has been fairly hawkish. Waller’s speech last week, emphasizing that he was now in favor of removing the easing bias from the statement, was definitely notable… there is more of a drift occurring, where maybe some of the other committee members are turning more hawkish.”
“Our forecast is still for rate cuts in December and March. You could easily imagine that if we don’t see a more pronounced weakening of the labor market, that those rate cuts get delayed.”
“You should be pricing in on a risk-adjusted basis a downward slope, because I could see more outcomes where the Fed is cutting a lot than I can see outcomes where the Fed is hiking a lot.”