US: Constructive about the growth outlook for the second half – Goldman Sachs

Research Team at Goldman Sachs, suggests that they run the major US economic data through a battery of tests on their leading and lagging properties, and find a few consistent results.

Key Quotes 

“First, the housing market has tended to lead the US business cycle—which many others have noted. Second, measures related to consumer durables—like vehicle sales—have also tended to lead changes in real activity. Third, labor market indicators have tended to lag (aside from initial jobless claims), although lag lengths are generally modest, at around one or two months. Labor market lags seem to have increased since 1990.

Although our tests find a consistent set of leading indicators, this does not mean these series deserve the most attention—we also need to consider data “quality”. We therefore score each indicator along three dimensions: the signal-tonoise ratio, the tendency for revisions, and the timeliness of the release. The idea is that the best indicators are released in a timely fashion and can be taken mostly at face value—what you see is what you get.

Combining our tests of the leading and lagging properties of the high-frequency indicators with our quality scores results in a short list of leading, high-quality indicators: the manufacturing ISM new orders index, initial jobless claims, vehicle sales, and consumer expectations.

At the moment these leading indicators offer a mixed message for the growth outlook: the ISM new orders index has picked up and jobless claims remain low, but both vehicle sales and consumer expectations have declined. When we consider other recent growth news—including the improvement in our GDP tracking estimate, CAI, and MAP indicator—as well as the steady easing of financial conditions, we see reason to remain constructive about the growth outlook for the second half.”