Goldman Sachs has updated its Q3 US GDP estimate from 1.6% to 1.7%. This change is based on new data from recent economic reports. In August, the ISM manufacturing index showed smaller growth than expected. While new orders and employment increased, production decreased. Additionally, the S&P Global manufacturing PMI was adjusted downward in its final August report. July’s construction spending fell as predicted, suggesting a 0.5% decline when considering inflation. However, the details in the construction spending report were somewhat better than Goldman Sachs anticipated. As a result, Goldman raised its Q3 GDP tracking estimate by 0.1 percentage points to 1.7% on an annualized basis. The estimate for domestic final sales also increased by the same amount, reaching 0.7%. We can expect more economic reports soon, including data on ISM services and non-farm payrolls. These upcoming reports could significantly shift expectations for the actual Q3 GDP results. While the slight increase in our third-quarter GDP estimate to 1.7% is noted, the details indicate a weak foundation. Manufacturing is showing softness, and there is a real decline in construction spending, leading to a tempered outlook. This suggests that the economy is growing, but without strong momentum as we move into fall. Given this sluggish trend, the Federal Reserve is likely to hold steady. Over the summer, persistent inflation remained a concern, with the July 2025 CPI data showing a steady 3.3% year-over-year increase, making a rate cut unlikely. Thus, the market’s expectations for a change in the Fed funds rate for the upcoming meeting don’t align with the current economic situation. We should prepare for increased market volatility, as it is sensitive to new information. The latest August non-farm payrolls report showed a slight cooling, with 165,000 jobs added and an unemployment rate rising to 4.0%. All eyes are on the upcoming ISM services report. The CBOE Volatility Index, or VIX, is around 16, which may not fully reflect potential market fluctuations from this week’s data. This economic landscape highlights a divergence between sectors. Ongoing weakness in manufacturing, a trend that may continue into parts of 2024, contrasts with the expected stability in the services sector. Traders might consider favoring services-related indexes over industrial ones, potentially using options spreads to take advantage of this performance gap.

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