U.S. Wage Growth Falls to 3.6%, While Global Activity Remains Above Potential

Overview

This report updates Goldman Sachs' global proprietary economic indicators framework, covering wages and inflation, financial conditions and their growth impulse, current economic activity, economic data surprises, fiscal impulse, capacity utilization, and Goldman Sachs and consensus growth and inflation forecasts. The core message is that U.S. wage growth continues to slow, while global economic activity remains resilient and financial conditions have also eased marginally.

Core views

The U.S. wage tracker fell to 3.6% year-over-year as of the second quarter, indicating continued easing in labor cost pressures. Meanwhile, the global current activity indicator was 3.4% in July, above developed markets at 2.6% but below emerging markets at 4.5%, showing that global activity remains above potential and that emerging markets are stronger overall. The global financial conditions index excluding Russia eased by 9 basis points over the week, providing some support for future growth. Divergence at the country level is pronounced: activity is strong in India and China, while Brazil has weakened significantly; the U.S. short-term capacity utilization score remains negative. On growth forecasts, Goldman Sachs raised its 2026 forecast for the U.S. and lowered forecasts for the Philippines and Indonesia.

Analysis framework

The report uses Goldman Sachs' proprietary indicators and a cross-country comparison framework, converting high-frequency activity data, labor market data, price data, financial market variables, fiscal policy, and economist forecasts into comparable metrics such as growth, inflation, or GDP-equivalent values. The analysis compares current values, weekly changes, three-month averages, and differences between Goldman Sachs forecasts and those of other forecasters to identify trends, inflection points, and regional divergence.

Methodology notes

• Financial ConditionsGoldman Sachs Financial Conditions Index (FCI)

  Measures the degree of easing or tightening in the overall financial environment of major economies.

  This indicator is used to assess the transmission of monetary policy to the real economy, the importance of financial shocks, and the environment for future GDP growth.

• Growth TransmissionFCI Growth Impulse

  Estimates the impact of changes in financial conditions on real GDP growth.

  The report examines the financial conditions growth impulse over the next four quarters and across economies such as the U.S., the euro area, Japan, and the U.K.

• Economic ActivityCurrent Activity Indicator (CAI)

  Extracts the first principal component from multiple real activity indicators and converts it into a GDP-equivalent value.

  The CAI represents the growth signal implied by major high-frequency indicators; data not yet released are supplemented with forecasts and replaced once actual data are published.

• Economic Data SurprisesMAP Surprise Index

  Measures the direction, magnitude, and importance of economic data surprises relative to market consensus.

  The report presents the 21-day moving average of daily MAP scores and standardizes indicator selection, surprise thresholds, and aggregation methods across countries.

• InflationTrimmed Core Inflation

  Excludes the one-third of core inflation components with the most extreme price changes.

  This method aims to reduce the interference from abnormal price volatility and measure underlying inflation trends more stably.

• Labor MarketJobs-Workers Gap

  Compares the gap between total labor demand and labor supply.

  Labor demand includes employment and job vacancies, while labor supply corresponds to the labor force; forecasts combine high-frequency hiring data, unemployment claims, and other leading indicators.

• WagesWage Tracker and Wage Survey Leading Indicator

  Measures underlying wage growth in major economies and extracts leading wage signals from surveys.

  The wage tracker covers G10 economies; the U.S. indicator was adjusted for employment composition in 2020 and 2021.

• Fiscal PolicyTop-Down Fiscal Impulse

  Estimates the impact of fiscal policy on real GDP growth.

  The next-four-quarter indicator uses the average fiscal growth impulse from the first to fourth quarters of 2026; the U.S. indicator also includes expansionary discretionary fiscal policy and the tax-like effects of tariffs.

• Capacity UtilizationShort-Term Capacity Utilization Score

  Comprehensively measures labor market and industrial sector operating conditions relative to potential levels.

  This indicator is formed by weighting hard data and survey indicators such as the unemployment rate and supplier delivery times, and is converted into a GDP-equivalent value; it was previously called the short-term output gap.

• Inflation SurprisesHeadline and Core Inflation Surprise Index

  Measures deviations of actual inflation from Bloomberg consensus.

  The developed market aggregate indicator is GDP-weighted, covers the U.S., euro area, U.K., Canada, and Japan, and is expressed in basis points.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• U.S. Treasuries and U.S. dollar rates

  Slower U.S. wage growth helps ease upward pressure on rates, but strong economic activity and loose financial conditions may limit downside in yields.

  Strengths

  Weaker wage inflation pressure provides some macro basis for future policy easing.

  Weaknesses

  Global and U.S. activity remain resilient and do not form a clear recession signal.

  Comparison

  Signals of easing inflation and resilient growth offset each other, so the direction for duration is not one-sided.

  Risks

  Subsequent wages, core inflation, or economic data may again surprise to the upside, potentially driving a reversal in rate expectations.

• Global equities

  Easier financial conditions and global activity above potential are generally supportive of earnings and risk appetite.

  Strengths

  The global CAI remains at a relatively high level, and emerging market activity growth is overall higher than that of developed markets.

  Weaknesses

  Country performance is highly divergent, with some economies showing weak activity or capacity utilization indicators.

  Comparison

  Emerging markets have stronger aggregate activity, but internal differences are large, so the aggregate advantage cannot be equated with synchronized strengthening across all markets.

  Risks

  Inflation surprises, a rebound in long-term interest rates, fiscal policy changes, and downward revisions to growth forecasts may offset the improvement in financial conditions.

• U.S. dollar and major currencies

  The upward revision to the U.S. growth forecast provides relative support for the dollar, but slower wages may reduce its interest-rate advantage.

  Strengths

  The U.S. July CAI remains at a relatively high level, and growth expectations are relatively robust.

  Weaknesses

  Weaker wage pressure may lead markets to price in more policy easing.

  Comparison

  The direction of the dollar depends on whether the advantage of U.S. growth resilience relative to other economies can outweigh the impact of lower rates.

  Risks

  Differences in cross-country data release schedules, replacement of forecast values, and changes in policy expectations may cause significant volatility.

• Inflation-protected assets

  Slower wage growth weakens the case for persistently high inflation, but global activity above potential may still sustain some price pressure.

  Strengths

  Fiscal impulse, the tax-like effects of tariffs, and strong demand may preserve some inflation tail risk.

  Weaknesses

  The easing U.S. wage trend reduces support for underlying services inflation.

  Comparison

  Current evidence more strongly supports a marginal decline in inflation pressure rather than the complete disappearance of inflation risks.

  Risks

  A rebound in headline and core inflation surprise indices, or new price shocks from tariffs and fiscal policy.

Key data

• U.S. Wage Tracker3.6% year-over-year as of the second quarterSlower than before, indicating that underlying wage pressures are easing.
• Weekly change in global FCI excluding Russia-9 basis pointsA decline in the index represents an easing of financial conditions, with this week's change mainly driven by long-term interest rates.
• Global July current CAI3.4%On a month-over-month annualized basis, down 0.2 percentage points week-over-week, with a three-month average of 3.2%.
• Developed market July current CAI2.6%Down 0.1 percentage points week-over-week, with a three-month average of 2.4%.
• Emerging market July current CAI4.5%Down 0.4 percentage points week-over-week, with a three-month average also at 4.5%.
• U.S. July current CAI3.6%At the time, 66% of the relevant data had been released, and the indicator was down 0.3 percentage points week-over-week.
• China and India July current CAIChina 5.1%, India 7.4%India rose 0.2 percentage points week-over-week, while China fell 0.6 percentage points week-over-week.
• Brazil July current CAI0.9%Down sharply by 2.0 percentage points week-over-week, one of the more notable weakening signals in this update.
• U.K. July current CAI1.1%Up 0.3 percentage points week-over-week, with a three-month average of 0.3%.
• U.S. Short-Term Capacity Utilization Score-1.9%Still negative relative to potential, with a three-month average of -2.0%.
• 2026 growth forecast adjustmentsRaised for the U.S.; lowered for the Philippines and IndonesiaThe original text did not provide specific adjustment magnitudes in the extracted content.

Impact & implications

Slower wage growth helps reduce U.S. underlying inflation and monetary policy pressure, but the global CAI being above potential and further easing in financial conditions mean demand remains resilient, which may limit the need for rapid policy easing. The market implication is closer to “growth is acceptable and inflation pressure is easing at the margin,” rather than a clear recession or reflation scenario. Country-level divergence requires investors to avoid judging regional assets solely based on global aggregate indicators, and in particular to distinguish stronger activity signals in India and China from weaker signals such as Brazil and the U.S. short-term capacity utilization.

Risks

• The July CAI is preliminary data, and data release ratios vary significantly across countries; some missing values are model forecasts, and subsequent actual data may lead to significant revisions.
• CAI, FCI, MAP, and other indicators are all Goldman Sachs proprietary models, and indicator settings, weights, and judgmental adjustments may affect conclusions.
• Global, developed market, and emerging market aggregate indicators use GDP or market exchange-rate weights, which may mask pronounced divergence in individual economies.
• Economic growth and inflation forecasts will be adjusted as new data, policy, and financial market conditions change.
• The U.S. fiscal impulse includes both expansionary fiscal policy and the tax-like effects of tariffs, and policy changes may cause the growth impact to deviate from current estimates.
• This report does not provide single-stock ratings or independent securities recommendations, and macro indicators do not correspond one-to-one with specific asset returns.

What to watch

• Whether the U.S. wage tracker continues to fall below 3.6%, and changes in wage survey leading indicators.
• Whether global and country activity indicators are significantly revised after forecast values in the July CAI are replaced by actual data.
• Whether the global FCI can continue to ease, and the contribution of long-term interest rates to changes in financial conditions.
• Whether the divergence between a strong U.S. CAI and a negative short-term capacity utilization score converges.
• Whether headline and core inflation surprise indices confirm that easing wage pressures are passing through to inflation data.
• The magnitude of subsequent adjustments to 2026 growth forecasts for the U.S., the Philippines, and Indonesia.
• The net impact of U.S. fiscal expansion and tariff-like tax effects on growth and inflation over the next four quarters.