Goldman Sachs: July core PCE met expectations, but trade deficit widened sharply; lowered Q3 U.S. GDP forecast to 1.6%

According to the Zhitong Finance APP, Goldman Sachs published a research report stating that the core Personal Consumption Expenditures (PCE) price index in the U.S. for July basically met market expectations, but the goods trade deficit unexpectedly widened significantly, prompting the bank to lower its forecast for U.S. economic growth in the third quarter.

From the core inflation data, the core PCE price index rose by 0.27% month-on-month in July and climbed to 2.88% year-on-year, which is in line with Goldman Sachs' previous forecast (0.26% month-on-month, 2.87% year-on-year) and general market expectations (0.3% month-on-month, 2.9% year-on-year). Specifically, core goods prices remained flat in July, while core services prices increased by 0.36% month-on-month; the market-based core PCE rose by 0.17% month-on-month, and core services prices excluding housing increased by 0.39% month-on-month. This increase was partly due to a 5.4% month-on-month rise in portfolio management prices and a 0.8% month-on-month increase in non-profit organization prices. Meanwhile, the overall PCE price index rose by 0.20% month-on-month and increased to 2.60% year-on-year, fully aligning with Goldman Sachs and market expectations.

In terms of household income and expenditure, U.S. personal income grew by 0.4% month-on-month in July, in line with Goldman Sachs and market expectations. The main driving factors included a 0.6% month-on-month increase in compensation for employees, a 0.7% month-on-month rise in owner’s income, a 0.5% month-on-month increase in rental income, and a 0.1% month-on-month rise in asset income, while transfer payments remained stable. Personal spending also performed well, increasing by 0.5% month-on-month in July, slightly above Goldman Sachs' expectation of 0.4% and in line with market expectations; real personal spending adjusted for inflation rose by 0.3% month-on-month, with real goods spending increasing by 0.9% month-on-month and real services spending rising by 0.1% month-on-month. The savings rate remained at 4.4% in July, revised down from the previously reported June figure of 4.5%.

In the goods trade sector, there was a significant widening of the deficit. According to the leading economic indicators report, the seasonally adjusted U.S. goods trade deficit expanded by $18.7 billion to $103.6 billion in July, far exceeding Goldman Sachs' ($91 billion) and market ($90.2 billion) expectations, with the previous value at $84.9 billion. Behind the data, goods exports decreased by $100 million in July, while imports surged by $18.6 billion. Goldman Sachs analyzes that this may be related to companies stocking up in advance due to the tariff policy that will take effect in August. From the trade structure, the widening deficit was mainly due to a $12.3 billion increase in industrial goods imports and a $4.4 billion increase in capital goods imports; on the export side, there was a divergence, with industrial goods exports decreasing by $500 million and capital goods exports increasing by $400 million Goldman Sachs emphasized in the report that the unexpected trade deficit in goods is the core reason for the downward revision of the third-quarter Gross Domestic Product (GDP) tracking value. The bank stated that it has lowered the tracking forecast for the U.S. third-quarter GDP by 0.2 percentage points to 1.6% (annualized quarterly rate). This indicates that net exports will significantly drag on economic growth. However, the indicator measuring domestic demand strength—domestic final sales—is still expected to maintain a positive growth of 0.6%