Goldman Sachs expects consumer spending to slow further in May

The economists at Goldman Sachs believe that high inflation and rising interest rates are going to pressure consumer spending.

In a new note, Goldman Chief economist Jan Hatzius stated that consumer spending had a slowdown in late April and early May due to tighter financial conditions and higher consumer prices. The consumer sentiment in early May, a 10 year low, suggests that the weakness could continue in late May and possibly June. The economist slashed his second quarter GDP estimate to 2.5% from 2.9%. Consensus estimates are looking for a 3% increase in GDP, a bounce back from the 1.4% decline in the first quarter.

Hatzius says that we are assuming a deceleration in services spending in May and June and an overall decline in retail spending in May, despite the fact that $2.5 trillion of excess savings, solid job gains and continued wage growth are continuing tailwinds for consumption growth. Indications are picking up that the US consumer is poised to retrench on their spending in the coming months due to higher costs of living and bear markets in many sectors of the stock market.

Consumer confidence in the U.S. hit an 11-year low in early May, according to the University of Michigan. Consumer sentiment of 59.1 fell more than 28% from a year ago.

Consumers' assessment of their current financial situation relative to a year ago is at its lowest level since 2013, with 36% of consumers attributed their negative assessment to inflation, the survey said.

The data from Adobe shows that U.S. consumers spent 4.5% more online in April compared to last year. That is a much lower growth rate than the double-digit growth rates seen in January and February. In April, online spending was slower than the 6.8% increase in March.

Adobe vice president of growth marketing and insights Patrick Brown said as the cost of borrowing and economic uncertainty rises for consumers, we are beginning to see the early impact on online inflation and spend.

The consumer's weak readings are also being reflected in the stock prices of consumer-centric companies.

The shares of discretionary retailer Macy's have fallen 16.5% in the past month, compared to a 9.5% drop for the S&P 500. The SPDR Fund has lost 15.8% over the past four weeks.

Home Depot and Lowe's have lost 28% and 25% of their market value this year because rising rates have pressured home sales.

Rocket Companies CEO Jay Farner said on Yahoo Finance Live that they feel strongly that there will be a recession in the coming quarters.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. You can follow Sozzi on Twitter and LinkedIn.