Goldman’s Kostin: This is a growth scare, not a recession

The United States can avoid a recession because the U.S. consumer is likely to continue strengthening in the face of what is clearly an industrial recession, David Kostin, chief U.S. equity strategist at Goldman Sachs, said Tuesday.

"If the U.S. consumer, which represents about two-thirds of the economy, continues to grow, then this will be more of a growth scare than what could be worse, a recession," he told CNBC's "Squawk on the Street."

Kostin acknowledged that questions are swirling around the Federal Reserve's interest rate policy and the durability of demand, but he said the U.S. economy ultimately comes down to the consumer.

Growth in jobs, an uptick in wages and improvement in Americans' debt levels are making Goldman Sachs more confident about the consumer, he said.

The strategist expects "modest" earnings growth of about 5 percent, excluding energy, and forecasts the S&P 500 will end the year moderately higher at 2,100. The index was down modestly at 1,841 midday Tuesday.

Kostin said he believes the weakness in U.S. markets in January was largely due to the absence of corporate buyers as companies prepared for earnings season.

"Now we have a situation where companies are back in the market repurchasing shares," he said. "By I think February, March, that's likely to be the driving story, less about concerns in terms of the rates if the Fed stays on hold. It's more about, where's the supply and demand for shares?"

As for whether companies should be using their money to invest in jobs and growth, Kostin said there's little reason for companies to be spending beyond basic maintenance needs because capacity utilization is running around 80 percent, in line with the 40-year average.

With the S&P down nearly 10 percent from the start of the year, buying back stocks has become a more attractive tactic, he said.