Goldman Sachs: Core PCE in July meets expectations but trade deficit sharply expands, lowering Q3 US GDP forecast to 1.6%.

Goldman Sachs released a research report stating that the core personal consumption expenditure (PCE) price index in the US for July basically met market expectations, but the unexpected significant expansion of the trade deficit has led the bank to lower its forecast for US economic growth in the third quarter. From the core inflation data perspective, the core PCE price index rose by 0.27% month-on-month in July, reaching 2.88% year-on-year, which is essentially in line with Goldman Sachs' previous forecasts (0.26% month-on-month, 2.87% year-on-year) and market expectations (0.3% month-on-month, 2.9% year-on-year). Specifically, core goods prices remained unchanged in July, while core services prices rose by 0.36% month-on-month; the market-based core PCE rose by 0.17% month-on-month, and core services prices excluding housing rose by 0.39% month-on-month, partially driven by a 5.4% increase in investment management prices and a 0.8% increase in non-profit organization prices. At the same time, the overall PCE price index rose by 0.20% month-on-month, reaching 2.60% year-on-year, completely in line with Goldman Sachs' and market expectations. As for household income and expenditure, personal income in the US rose by 0.4% month-on-month in July, in line with Goldman Sachs and market expectations, driven mainly by a 0.6% increase in employment compensation, a 0.7% increase in owner's income, a 0.5% increase in rental income, and a 0.1% increase in asset income, while transfer payments remained stable. Personal spending also performed well, increasing by 0.5% month-on-month in July, slightly higher than 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% and real services spending increasing by 0.1%. The savings rate remained at 4.4% in July, down from the previously reported 4.5% in June. There was a significant expansion in the trade deficit in the goods trade sector. According to preliminary economic indicators, seasonally adjusted US goods trade deficit widened by $18.7 billion to $103.6 billion in July, far exceeding Goldman Sachs' ($91 billion) and the market's ($90.2 billion) expectations, with the previous value at $84.9 billion. Behind the data, exports of goods decreased by $100 million in July, while imports increased significantly by $18.6 billion. Goldman Sachs analysis suggested that this may be related to businesses stocking up early in response to the tariff policy that will take effect in August. In terms of trade structure, the deficit expansion was mainly driven by 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 differentiation, with industrial goods exports decreasing by $500 million and capital goods exports increasing by $400 million. Goldman Sachs emphasized in the report that this unexpected increase in the goods trade deficit was the core reason for lowering the tracking value of third-quarter Gross Domestic Product (GDP). The bank stated that it lowered its tracking estimate for US GDP in the third quarter by 0.2 percentage points to 1.6% (annualized rate). This indicates that net exports will significantly drag on economic growth. However, the indicator of domestic demand strength - final domestic sales - is expected to maintain positive growth of 0.6%.