UBS On-Air: Paul Donovan Daily Audio 'The great US consumer'
At a Glance
UBS Chief Economist Paul Donovan argues the US labor market remains the critical driver of the economy, with consumers spending more and saving less to afford tariffs per the full note . He sees the labor market as strong enough to sustain confidence but not strong enough to create wage pressures, dismissing wage-price spirals as unrealistic. Oil price rises are a near-term inflation perception risk, but the broader narrative supports steady consumer spending, which benefits risk assets.
Key Takeaways
- 01US labor market is strong enough to support consumer spending but not to create wage pressures.
- 02Consumers are spending more and saving less to afford tariffs, requiring job security.
- 03Oil price rises could temporarily inflate perceptions, but the underlying inflation trend remains benign.
- 04Wage-price spiral risk is dismissed as very low, with current labor structures unlike the 1970s.
Full Analysis
What the desk is arguing
Paul Donovan argues that the US labor market is the linchpin of the economy, as consumers in 2025 relied on higher spending and lower savings to absorb tariff costs per the full note . Job security is essential to maintain that consumption, and the current labor market provides it without generating significant wage increases.
Donovan explicitly rejects the possibility of a 1970s-style wage-price spiral, noting that average hourly earnings data can be misleading when hiring of cheaper younger workers slows. Instead, the labor market conditions support steady spending, which is the key engine for growth.
The alternative read would be that weakening labor market data—such as a rise in claims or a drop in payrolls—could quickly undermine consumer confidence. However, Donovan emphasizes the prevailing data does not support that scenario.
Where it sits in our coverage
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How other firms see it
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What the calendar says
(No high-impact events in the next 30 days—section omitted.)
Market Implications
Watch USD/JPY and EUR/USD for risk-on support as consumer confidence holds. A payrolls print above 200K today would reinforce the view, while a surprise miss could trigger a dollar selloff.
From the original
The US labor market remains the critical driver of the US economy. In 2025, US consumers spent more and saved less of their income to afford tariffs. That requires job security. The US labor market is not strong enough to create significant pay pressures—we are very, very far fro