China's July Consumption Data Fell Short of Expectations, While Global Economic Activity Remains Above Potential

Overview

This is a Goldman Sachs global economic indicators update. The report focuses on the downside surprise in China's July consumption data and uses proprietary indicators covering financial conditions, current activity, economic data surprises, inflation, wages, labor supply and demand, fiscal impulses, and capacity utilization to present the latest growth and price signals across major global economies.

Core views

The report first highlights the negative surprise in Chinese consumption: July spending data were weaker than expected, with year-over-year retail sales growth slowing to just 0.6%. This result indicates that consumer momentum during the month was weaker than previously expected and represents the clearest downside development in this edition of the global indicators update. Regarding financial conditions, the global financial conditions index excluding Russia eased by 2.8 basis points last week, driven primarily by short-term interest rates. Goldman Sachs uses the financial conditions index to measure the overall tightness or looseness of financing conditions across major economies and thereby assess the transmission of monetary policy to the real economy and the impact of financial shocks on growth. The associated financial conditions impulse further measures the effect of such changes on real GDP growth over the next four quarters. The report presents index levels, weekly changes, year-over-year changes, and component contributions for the global economy, the United States, the Euro Area, and other countries. Growth and real-time activity signals are not consistent. The latest direction of 2026 growth forecasts is upward for Mexico and downward for Poland and the United States. The preliminary July current activity indicator rose by 0.1 percentage points in Canada and fell by 0.3 percentage points in the United Kingdom. Despite cross-country divergence, the report notes that the global current activity indicator remains significantly above potential. This indicator extracts a common growth signal from multiple high-frequency measures of real activity and converts it into units comparable with GDP growth. Data that have not yet been released are initially represented by forecasts and then replaced with actual values upon release. The global, developed market, and emerging market aggregate indicators cover economies including the United States, Germany, France, Italy, Spain, Japan, the United Kingdom, Canada, Brazil, Russia, India, and China, and are aggregated using the market-exchange-rate country weights described in the report. The report also uses the MAP surprise index to assess the degree to which economic data deviate from market consensus. The index standardizes indicator selection, importance, surprise thresholds, and aggregation methods across countries and displays trends using a 21-day moving average of daily scores. The inflation section examines actual-minus-forecast differences for headline and core CPI relative to Bloomberg consensus, measured in basis points and aggregated using GDP weights. The developed market aggregate covers the United States, Euro Area, United Kingdom, Canada, and Japan. The report also presents cumulative inflation surprises over the past 12 months, country contributions over the past three months, and trimmed core inflation excluding the one-third of components with the most extreme price changes to reduce the influence of a small number of outlier components on assessments of underlying inflation. The wage and labor market analysis consists of several interconnected indicators. The wage tracker measures the pace of underlying wage growth across G10 economies, with compositional adjustments to the US indicator in 2020 and 2021. The jobs-worker gap compares total labor demand, defined as job openings plus employment, with labor supply. For forecasting purposes, high-frequency job posting data are used to estimate official job openings, while leading indicators such as unemployment claims are incorporated to forecast the unemployment rate. The wage survey leading indicator aggregates responses from business and consumer surveys regarding current and expected wage growth. The short-term utilization score combines hard data and survey data from labor markets and the industrial sector, such as unemployment rates and supplier delivery times, and then weights and converts them into GDP-equivalent units to assess economic resource utilization. On fiscal policy, the fiscal impulse is used to measure the impact of fiscal policy on real GDP growth. The indicator for the next four quarters is calculated as the average fiscal growth impulse from the first through fourth quarters of 2026. The US measure incorporates both expansionary discretionary fiscal policy and the tax-like effects of tariffs. The report separately presents fiscal impulses for the United States, Euro Area, China, and United Kingdom, allowing fiscal support and tariff-related drags to be compared within a unified growth framework. Finally, the report updates changes in inflation and GDP forecasts for 2026 and 2027 and compares Goldman Sachs' global GDP forecast with those of other forecasters. The explicitly stated directions of growth forecast changes are an upward revision to Mexico's 2026 forecast and downward revisions to Poland and the United States. The remaining charts primarily provide a cross-economy, cross-year framework for tracking forecasts. Overall, the most prominent local development in this edition is the downside surprise in Chinese consumption, but global current activity remains above potential and financial conditions eased over the latest week. The report therefore presents a picture of cross-country divergence rather than a unidirectional global growth signal.

Analysis framework

The report begins with the week's most notable data surprise—weak Chinese consumption in July—and then sequentially examines financial conditions and their growth impulse, real-time activity indicators, economic data surprises, inflation and wage pressures, labor supply and demand, fiscal impulses, and short-term utilization. It concludes by updating growth and inflation forecasts for 2026–2027 and comparing them with those of other forecasters. Its methodology primarily involves standardizing, weighting, and aggregating high-frequency data across countries, then converting them into GDP-equivalent units, surprise values relative to consensus, or impulses affecting future growth.

Methodology notes

• Macroeconomic framework

  Financial Conditions Index (FCI)

  Provides a comprehensive measure of the tightness or looseness of financial conditions in major economies and is used to analyze GDP growth prospects, monetary policy transmission to the real economy, and the significance of financial shocks.

• Macroeconomic framework

  Financial Conditions Impulses (FCI Impulses)

  Converts changes in financial conditions into their impact on future real GDP growth, with the report focusing on their effect over the next four quarters.

• Quantitative/Factor/Portfolio Theory

  First Principal Component Method for the Current Activity Indicator (CAI)

  Extracts common movements from multiple real activity indicators and converts them into GDP-equivalent units. Missing indicators initially use forecast values, which are replaced by actual values after release.

• Event-Driven Strategy and Behavioral FinanceExpectation Gap/Expectation Management

  MAP Surprise Index

  Measures the direction, magnitude, and importance of surprises based on the degree to which economic data deviate from market consensus, and tracks trends using a 21-day moving average of daily scores.

• Quantitative/Factor/Portfolio Theory

  Trimmed Core Inflation

  Excludes the one-third of core inflation components with the most extreme price changes to reduce interference from outlier components in the underlying inflation signal.

• Macroeconomic framework

  Jobs-Worker Gap

  Compares labor demand, represented by job openings plus employment, with labor supply to characterize the degree of labor market tightness.

• Cycle and Business Conditions Framework

  Wage Survey Leading Indicator

  Aggregates questions from business and consumer surveys concerning current and expected wage growth as a forward-looking signal of wage changes.

• Macroeconomic framework

  Wage Tracker

  Measures the pace of underlying wage growth across G10 economies. The US series underwent compositional adjustments in 2020 and 2021.

• Macroeconomic framework

  Fiscal Impulse

  Measures the impact of fiscal policy on real GDP growth. The report's four-quarter indicator uses the average fiscal growth impulse from the first through fourth quarters of 2026.

• Cycle and Business Conditions Framework

  Short-Term Utilization Score

  Combines hard data and survey scores from labor markets and the industrial sector, then weights and converts them into GDP-equivalent units. This indicator was previously called the short-term output gap.

Key data

• China July Retail Sales Growth0.6%Year-over-year growth slowed, and consumption data fell short of expectations
• Weekly Change in the Global Financial Conditions Index Excluding Russia+2.8 basis points (easing)Change last week, driven primarily by short-term interest rates
• Direction of 2026 Growth ForecastsMexico revised upward; Poland and the United States revised downwardDirection of the latest forecast changes presented in the report
• Change in Canada's Preliminary July Current Activity Indicator+0.1 percentage pointsMonthly indicator update
• Change in the United Kingdom's Preliminary July Current Activity Indicator-0.3 percentage pointsMonthly indicator update
• Global Current Activity IndicatorSignificantly above potentialThe report's assessment of the global real-time activity signal
• MAP Surprise Index Smoothing Window21-day moving averageUsed to display trends in daily economic data surprise scores
• Share Excluded from Trimmed Core InflationOne-thirdExcludes the most extreme price changes among core inflation components
• Four-Quarter Fiscal Impulse Calculation Period2026Q1—2026Q4Uses the average fiscal growth impulse across the four quarters
• Inflation Surprise Index MeasurementActual value minus Bloomberg consensus, measured in basis pointsBoth headline and core CPI surprises are aggregated using GDP weights

Impact & implications

The report's core implication is that global economic signals are clearly divergent: China's consumption momentum was weaker than expected in July, and the direction of 2026 growth forecasts for the United States and Poland was revised downward. However, global current activity remains above potential, Mexico's forecast was revised upward, and financial conditions eased over the latest week. Goldman Sachs therefore uses a multi-indicator framework to distinguish local downside surprises and cross-country differences from overall global activity conditions, rather than summarizing the global cycle with a single data point.

What to watch

• Monitor subsequent Chinese retail sales and other spending data to determine whether July's 0.6% year-over-year growth rate persists.
• Monitor weekly changes in global and major-economy financial conditions indices, as well as the contribution of short-term interest rates to financial conditions.
• Monitor updates to the current activity indicators for Canada and the United Kingdom as more actual data are released.
• Monitor the direction of headline and core inflation surprises relative to market consensus and each country's contribution.
• Monitor the wage tracker, jobs-worker gap, and wage survey leading indicator for signals regarding underlying wage pressures.
• Monitor subsequent revisions to 2026–2027 GDP and inflation forecasts, as well as the impact of fiscal impulses on growth.