Goldman Sachs Analyst Index (GSAI) tracks manufacturing and service sectors based on bottom-up analyst input on a firm by firm basis to generate a real-time indicator of US economic strength akin to the ISM data. After spiking to multi-year highs in August, it has collapsed by the most in a year in September as the New Orders sub-index retraced its outsized gains from August. The sales/shipments index fell, while the employment index stayed flat and below the 50 mark. The underlying composition of the GSAI weakened in September with a few sectors noting lower sales and/or a downgrade in expectations, and on balance sentiment with respect to business conditions seemed a touch weaker since August and employment remained below 50 for the sixth month.
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Via Goldman Sachs,
The GSAI fell 6.6 points to 50.0 in September from 56.6 in August. The new orders index partially retraced its outsized gain in August and accounted for most of the headline slide. Other underlying components were also soft on net. The sales/shipments index fell, while the employment index stayed flat and below the 50 mark. The capital spending index was the one consistent bright spot, rising to its highest level since August 2011. The September GSAI joins other business surveys (stronger Philly Fed, mixed Empire State, and weaker Richmond Fed) in sending a mixed signal about recent business activities.
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(As a reminder, we construct the headline GSAI using the following weights: 30% for new orders, 25% for sales/shipments, 20% for employment, 15% for materials prices, and 10% for inventories. These weights parallel the Institute for Supply Management’s pre-2008 practice, substituting our materials prices index for their supplier deliveries index. The GSAI includes service as well as manufacturing industries. As with the ISM indexes, a reading above 50 theoretically signals growth while an index level below 50 signals contraction. However, our analysis suggests that a GSAI of 50 appears more consistent with trend growth than with no growth.)
The underlying composition of the GSAI weakened in September. The sales and shipments index fell for the second consecutive month by 3.7 points to 46.0. Qualitative comments suggested that seasonality accounted for part of the slowdown, although overall sentiment with respect to sales seemed muted compared to previous months. As we had expected, the new orders index retraced part of its outsized jump in August, falling to 54.7 in September and accounting for the majority of the decline in the headline index. Despite the drop, the new orders index remained above the 50 mark and has trended up since earlier this year. That said, combined with an increase in the inventories index, the orders-less-inventories gap fell back to negative territory, suggesting more moderate activity ahead...
The employment index stayed flat at 44.5 in September. This was the sixth consecutive month that this index registered a sub-50 reading, painting a weaker picture of the labor market compared to other indicators such as the employment component of the Philly Fed survey and the Conference Board's labor differential. As discussed yesterday, we continue to expect a gradual improvement in the labor market, with payrolls growth rising back to the 200,000/mo range going into 2014.
On the inflation front, all three price-related indexes were relatively subdued. The materials prices index stayed flat at 44.4; the output prices index rose 9.1 points but remained below the 50 mark. Meanwhile, the index for wages and labor costs fell 5.7points to 57.5 after a surprise uptick in August.
Analyst commentary continued to focus mainly on industry-specific trends. A few sectors noted lower sales and/or a downgrade in expectations, and on balance sentiment with respect to business conditions seemed a touch weaker since August.