US Activity Indicators Rebound, Financial Conditions Ease Slightly, Q3 GDP Forecast at 2.3%

Overview

This is an update of proprietary indicators from Goldman Sachs' US Economics Team, sequentially covering financial conditions, GDP forecasts, the extent of economic data surprises, current economic activity, and tracking frameworks for capital expenditures, employment, surveys, wages, inflation, and social media economic sentiment. The available data collectively indicate that financial conditions have eased slightly recently and activity indicators have rebounded from July, but the report does not provide an investment rating or a clear market direction recommendation.

Core views

First, the report shows that US financial conditions eased over the past week. The nominal GS US Financial Conditions Index declined 0.8 basis points to 98.39, primarily due to a weaker US dollar; the real GS US Financial Conditions Index fell by a larger 5.0 basis points to 98.15. Under the conventional interpretation of financial conditions indices, a decline indicates that the composite financial environment tracked by the report has become more accommodative, but this update does not further quantify the standalone contribution of this change to growth or asset prices. Regarding the growth outlook, Goldman Sachs forecasts third-quarter GDP growth at a seasonally adjusted annualized quarter-over-quarter rate of 2.3%. This forecast provides the report's baseline assessment of overall economic growth for the quarter, but the available text does not indicate whether it has been revised from the previous forecast or provide a breakdown of GDP component contributions. Economic data performance relative to expectations has improved. The Goldman Sachs US MAP Economic Surprise Index rose on net to +0.3, indicating that the data it tracks have, in aggregate, modestly surprised to the upside. The report does not provide the contribution of individual data releases to the index's change; therefore, it is only possible to confirm that the composite surprise indicator has turned slightly positive, not to determine whether any single industry or demand component was the primary driver. The real-time activity indicator also strengthened. The preliminary Current Activity Indicator for August was +3.8%, up from +3.4% in July. The indicator comprises the first principal component of 37 key weekly and monthly US economic indicators and is designed to extract their common variation. The higher reading therefore reflects a strengthening in the composite activity signal across a broad range of indicators rather than a simple change in any single statistical measure. The report then expands its monitoring scope to capital expenditures, economic slack and employment growth, manufacturing surveys, non-manufacturing surveys, wages, core inflation, and social media economic sentiment. The available text lists these proprietary trackers but does not provide corresponding values or directional interpretations, so their respective implications for the growth, employment, or inflation outlook cannot be assessed further. The wage monitoring section uses a composite survey approach: the monthly wage survey indicator averages the NFIB, Dallas Fed manufacturing and services surveys, Richmond Fed manufacturing and services surveys, New York Fed services survey, and Kansas City Fed services survey, and converts the result into a six-month annualized rate of average hourly earnings. Some wage indicators are also adjusted for changes in workforce composition from the first quarter of 2020 through the fourth quarter of 2021 to reduce distortions in wage growth readings caused by shifts in the employment mix.

Analysis framework

The report updates its assessment of the US economy in the sequence of "financial environment—aggregate growth forecast—data performance relative to expectations—real-time activity—component tracking of growth and inflation." Its core tools include nominal and real financial conditions indices, a seasonally adjusted annualized quarter-over-quarter GDP growth forecast, the MAP Economic Surprise Index, the Current Activity Indicator that extracts common variation from 37 high-frequency and monthly indicators, and proprietary trackers covering capital expenditures, employment, business surveys, wages, core inflation, and economic sentiment.

Methodology notes

• Macroeconomic framework

  GS US Financial Conditions Index

  The report separately tracks nominal and real financial conditions indices, using composite indices to observe changes in the tightness or ease of the financial environment; the decline in the nominal index this period was primarily attributed to a weaker US dollar.

• Quantitative/Factor/Portfolio Theory

  Principal Component Method for the Current Activity Indicator

  The Current Activity Indicator uses the first principal component of 37 key weekly and monthly US economic indicators to extract the most significant common variation in the data and generate a real-time composite activity signal.

• Macroeconomic framework

  Composite Wage Survey Indicator and Workforce Composition Adjustment

  The report averages surveys from several regional Federal Reserve Banks and the NFIB and converts the result into a six-month annualized rate of average hourly earnings, while also adjusting for changes in workforce composition from the first quarter of 2020 through the fourth quarter of 2021 to improve the comparability of wage trends.

• Macroeconomic framework

  Seasonally Adjusted Annualized Quarter-over-Quarter Rate

  The third-quarter GDP forecast expresses the quarter-over-quarter change at an annualized rate, based on which the report provides a growth forecast of 2.3% for the quarter.

Key data

• Nominal GS US Financial Conditions Index98.39Declined 0.8 basis points over the past week, primarily due to a weaker US dollar.
• Real GS US Financial Conditions Index98.15Declined 5.0 basis points over the past week.
• Third-Quarter GDP Forecast2.3%Seasonally adjusted annualized quarter-over-quarter rate.
• US MAP Economic Surprise Index+0.3The composite index rose on net to this level.
• Preliminary Current Activity Indicator for August+3.8%Up from +3.4% in July.
• Underlying Variables of the Current Activity Indicator37 indicatorsComprises the first principal component of key weekly and monthly US economic indicators.

Impact & implications

The report's recent combination of signals is as follows: financial conditions have eased marginally, economic data have been slightly positive relative to expectations, the Current Activity Indicator has strengthened from July, and third-quarter GDP growth is forecast at 2.3%. These results form Goldman Sachs' monitoring baseline for near-term US economic performance, but the report does not translate them into specific asset ratings, target prices, or trading recommendations.

What to watch

• Monitor subsequent changes in the nominal and real GS US Financial Conditions Indices and their drivers.
• Monitor whether the third-quarter GDP forecast is revised.
• Monitor whether the MAP Economic Surprise Index can remain positive.
• Monitor changes in the Current Activity Indicator following its preliminary August reading of +3.8%.
• Monitor the capital expenditures tracker and the economic slack and employment growth tracker.
• Monitor the manufacturing and non-manufacturing survey trackers.
• Monitor wage surveys, the core inflation tracker, and the Social Media Economic Sentiment Index.