Goldman Sachs: US Wage Growth Slows to 3.6%, Global Financial Conditions Improve

Overview

This is Goldman Sachs' regularly published global economic indicators update report, focusing primarily on signals of cooling in the US labor market and marginal changes in the global financial environment. The report shows that US wage growth has fallen to 3.6%, while global financial conditions have further eased due to declining long-term bond yields. However, economic growth momentum is diverging across countries: short-term activity indicators are strengthening in the US and UK, while some emerging market economies are showing signs of weakening.

Core views

The continued slowdown in US wage growth is the core focus of this report. Data from Goldman Sachs' proprietary US Wage Tracker indicates that as of Q2 2026, the year-over-year growth rate of this indicator has dropped to 3.6%. This data suggests that price pressures in the US labor market are gradually easing, providing important downward support evidence for subsequent inflation trends. As a comprehensive indicator measuring underlying wage trends, the decline in this tracker is typically viewed as a key leading signal for whether core services inflation can return to the target range. Global financial conditions are showing an easing trend, primarily driven by interest rate factors. The Goldman Sachs Global (ex-Russia) Financial Conditions Index (FCI) eased by 9 basis points last week, with the main contribution coming from the decline in long-term interest rates. Improvements in financial conditions usually provide a positive impulse to real GDP growth over the next few quarters, meaning that despite previous monetary policy maintaining restrictive levels, spontaneous easing in the market is providing a certain buffer space for the real economy. There is significant structural divergence in global economic growth momentum. In terms of growth forecasts, Goldman Sachs raised its 2026 growth forecast for the US but simultaneously lowered forecasts for the Philippines and Indonesia. Looking at high-frequency Current Activity Index (CAI) data, the UK's preliminary data for July showed a month-on-month increase of 0.3 percentage points, indicating resilience in economic activity; whereas Brazil saw a sharp decrease of 2.0 percentage points during the same period, reflecting huge differences in performance within emerging market economies. Overall, Goldman Sachs' global CAI remains significantly above potential output levels, suggesting that the global economy has not yet entered a recession zone, but the uneven hot and cold spots between countries warrant vigilance.

Analysis framework

The research report adopts a multi-dimensional self-developed high-frequency indicator system to track global economic dynamics, rather than relying solely on official lagging data. The analytical主线 revolves around the 'wage-inflation' transmission mechanism, constructing a component-adjusted wage tracker to capture underlying salary pressures; meanwhile, it utilizes the Financial Conditions Index (FCI) and its impulse components to quantify the leading impact of financial market changes on the real economy. Additionally, the report uses the Current Activity Index (CAI) as a real-time proxy for GDP, combined with the MAP Surprise Index to assess deviations of data relative to market expectations, thereby forming a comprehensive judgment on global growth and inflation situations.

Methodology notes

• Macroeconomic framework

  Financial Conditions Index (FCI) and its growth impulse

  The FCI synthesizes variables such as interest rates, exchange rates, stock prices, and credit spreads to measure the tightness or looseness of the overall financial environment; the FCI impulse further quantifies how these changes in tightness/looseness pull or drag down real GDP growth over the next four quarters, helping investors judge the direction of the leading impact of financial markets on the real economy.

• Macroeconomic framework

  Current Activity Index (CAI)

  The CAI extracts the 'first principal component' from multiple high-frequency real economic indicators, effectively condensing scattered monthly data into a single growth signal similar to GDP. When certain data have not yet been released, the model fills in with predicted values, replacing them with actuals once published; therefore, it can reflect economic turning points more timely than official GDP figures.

• Industry/Industrial Analysis FrameworkSupply and Demand Framework

  Jobs-Workers Gap

  This indicator measures the degree of supply-demand imbalance in the labor market by subtracting labor supply (working-age population) from total labor demand (job openings + employment). Compared to simple unemployment or vacancy rates, it captures the sources of upward pressure on wages more comprehensively and serves as a core forward-looking variable for analyzing wage inflation.

• Company Fundamentals and Financial FrameworkEarnings Quality Analysis

  Trimmed Core Inflation

  When calculating core inflation, this method excludes the top and bottom one-third of components with the highest and lowest increases, retaining only the middle portion of price changes. This filters out extreme fluctuations caused by supply shocks or seasonal factors in individual commodities, more accurately reflecting broad, persistent underlying inflation trends.

Key data

• US Wage Tracker (Q2 YoY)3.6%Slowed from previous value, indicating weakened momentum in wage growth
• Weekly Change in Global (ex-Russia) FCI-9bpsFinancial conditions eased, mainly contributed by the decline in long-term interest rates
• UK July CAI Change+0.3ppPreliminary data shows marginal improvement in short-term economic activity
• Brazil July CAI Change-2.0ppShort-term economic activity weakened significantly

Impact & implications

The slowdown in US wage growth to 3.6% enhances the flexibility of the Federal Reserve's subsequent policy space. If this trend continues, it will reduce the risk of stickiness in core services inflation. The spontaneous easing of global financial conditions partially offsets the lagged effects of previous tightening policies, helping developed economies maintain a soft landing path. However, the deepening divergence within emerging markets means that global allocation requires more prudent differentiation of country-specific risks, and one cannot simply generalize based on 'global growth being above potential levels'.

What to watch

• Whether subsequent quarterly readings of the US Wage Tracker continue to decline
• Whether the global FCI easing trend can persist and its actual transmission effect on GDP impulses
• Whether the sharp decline in CAI in emerging markets like Brazil is a temporary fluctuation
• Data verification following the upward revision of the 2026 US GDP forecast