Goldman Sachs released a research report stating that the US July core Personal Consumption Expenditures (PCE) price index largely met market expectations, but the goods trade deficit unexpectedly expanded significantly, prompting the bank to downgrade its forecast for US third-quarter economic growth.

Regarding core inflation data, the July core PCE price index rose 0.27% month-over-month and climbed to 2.88% year-over-year, essentially matching Goldman Sachs' previous forecast (0.26% MoM, 2.87% YoY) and broad market expectations (0.3% MoM, 2.9% YoY). In specific components, core goods prices remained flat in July, while core services prices increased 0.36% month-over-month. Market-based core PCE rose 0.17% month-over-month, and core services excluding housing increased 0.39% month-over-month, with this rise partially driven by a 5.4% month-over-month increase in portfolio management prices and a 0.8% month-over-month rise in nonprofit institution prices.

Meanwhile, the overall PCE price index rose 0.20% month-over-month and increased to 2.60% year-over-year, perfectly aligning with both Goldman Sachs and market expectations.

In terms of personal income and spending, July US personal income grew 0.4% month-over-month, meeting Goldman Sachs and market expectations. Key drivers included a 0.6% month-over-month increase in employment compensation, 0.7% growth in proprietors' income, 0.5% rise in rental income, and 0.1% increase in asset income, while transfer payments remained stable.

Personal spending also performed strongly, rising 0.5% month-over-month in July, slightly above Goldman Sachs' 0.4% expectation but in line with market expectations. After adjusting for inflation, real personal spending increased 0.3% month-over-month, with real goods spending up 0.9% month-over-month and real services spending up 0.1% month-over-month.

The savings rate remained at 4.4% in July, with the previously reported June figure (4.5%) revised downward.

The goods trade sector showed a significant widening of the deficit. According to advance economic indicators, on a seasonally adjusted basis, the July US goods trade deficit expanded by $18.7 billion to $103.6 billion, far exceeding Goldman Sachs' ($91.0 billion) and market ($90.2 billion) expectations, compared to the previous value of $84.9 billion.

Behind the data, July goods exports decreased by $0.1 billion while imports surged by $18.6 billion. Goldman Sachs analysts believe this may be related to companies stockpiling ahead of tariff policies set to take effect in August. From a trade structure perspective, the deficit expansion was mainly driven by a $12.3 billion increase in industrial supplies imports and a $4.4 billion increase in capital goods imports. On the export side, results were mixed, with industrial supplies exports declining by $0.5 billion while capital goods exports increased by $0.4 billion.

Goldman Sachs emphasized in its report that the unexpectedly large goods trade deficit was the core reason for downgrading its third-quarter Gross Domestic Product (GDP) tracking estimate. The bank stated it was cutting its US third-quarter GDP tracking forecast by 0.2 percentage points to 1.6% (annualized quarterly rate). This indicates that net exports will pose a significant drag on economic growth. However, domestic final sales, a measure of domestic demand strength, is still expected to maintain positive growth of 0.6%.