UBS has adjusted its sector positioning in favor of European consumer exposure while reducing its allocation to U.S. consumers, pointing to a split in underlying macro and household conditions on opposite sides of the Atlantic.
In a recent internal note, UBS identified a deceleration risk for U.S. consumption driven by a combination of wage pressures, depleted pandemic-era savings and slowing labour-force expansion. The bank quantifies its outlook for U.S. consumption growth at 2.2% in 2026, down from 2.6% in 2025, and expects quarterly annualized consumption growth to slow to 1.6% in the first quarter of 2026.
UBS links the slowdown to several observable indicators. Leading labour-market signals - including the quit rate - imply nominal wage growth of roughly 2.5% to 3%. At the same time, UBS anticipates quarterly annualized core personal consumption expenditures inflation to climb to 4.1% in the first quarter of 2026, indicating that real-wage trends are likely to come under pressure.
The bank also highlights that the U.S. savings ratio has fallen below levels suggested by UBS models and that much of the excess savings accumulated during the COVID-19 period have been largely exhausted. That contrasts with conditions in Europe, where excess savings appear more persistent.
Labour-force dynamics are another constraint in the U.S. story. UBS points out that labour-force growth has slowed to zero from 1.1% previously, reducing the economy's ability to sustain consumption growth through higher employment. Complementary employment indicators - such as purchasing managers' surveys, the Conference Board measures and UBS's own leading indicators - signal weakening job momentum, and consumer-confidence measures remain lacklustre.
These headwinds are unevenly distributed across households. UBS warns that lower-income households are most exposed: they have largely spent down pandemic-era excess savings, typically hold limited financial assets and face heightened exposure to price moves in goods affected by tariffs.
By contrast, UBS says the European consumer faces a backdrop with asymmetric upside risk versus consensus expectations. Although Bloomberg consensus forecasts point to 1.1% consumption growth in Europe in 2026 and UBS's own central forecast is 0.9%, the bank argues that the balance of risks is tilted higher.
Key components of the more constructive European case include modest real-wage growth, a higher savings buffer and improving household balance sheets. UBS notes that European real wage growth is forecast at about 1.2% in 2026 and, based on Indeed wage data cited by the bank, is now marginally above U.S. real-wage growth.
Europe's aggregate savings ratio remains roughly 3 percentage points above its pre-COVID level, and UBS estimates excess savings at about 10% of gross domestic product. Those additional balances provide scope for consumption to surprise on the upside if households choose to draw them down.
UBS also points to a 5% year-on-year rise in European house prices and improvements in household financial wealth, noting that around 26% of that financial wealth is held in equities. The bank argues that lower interest rates reduce the incentive to save while the fading energy shock is easing the squeeze on household budgets.
On energy, UBS forecasts European gas prices to fall by about 25% from 2025 levels by the third quarter of 2026. The bank notes that declines in gas and oil prices have historically supported consumption because of their weight in consumer price indices.
Currency and valuation considerations also inform UBS's view. The bank expects a stronger euro - forecasting a value of $1.19 in the first quarter of 2026 - and observes that periods of euro strength have coincided with relative outperformance in consumer-exposed sectors such as retail and airlines, where costs are often denominated in dollars. UBS adds that European retail equities remain relatively inexpensive on a historical basis and that earnings momentum for the sector has picked up.
Taken together, UBS concludes that the combination of softer near-term demand signals, weakening labour trends and a depleted U.S. household savings buffer increases downside risks for U.S. consumer activity, particularly among lower-income cohorts. In contrast, Europe presents a set of household and macro factors - residual excess savings, modest real-wage improvement, easing energy costs and supportive currency dynamics - that justify overweighting consumer exposure there.
The bank's repositioning reflects these cross-regional contrasts rather than a blanket view on global consumption, with the preference driven by relative risk-reward across consumer-exposed sectors.