Leaders from the biggest companies in the U.S. are still betting on a sharp economic pickup that has yet to take place, according to an analysis from Goldman Sachs.
Goldman Sachs looked at the conference call transcripts of S&P 500 companies during the second-quarter earnings season wrapping up and found that most CEOs still expect to see stronger economic growth on President Trump's watch.
But the actual tangible improvement in the economy is not happening yet, Goldman's analysis shows.
"Managers remain optimistic that the Trump Administration's platform of deregulation, tax reform, and infrastructure spending will eventually boost economic growth," David Kostin, Goldman's chief U.S. equity strategist, said in a note Monday.
"But most executives note that they haven't seen an appreciable increase in customer activity
despite improving sentiment. The more optimistic firms point to anecdotal evidence of an increase in demand, rather than an actual increase in activity," Kostin said.
Expectations of stronger economic growth arising from Trump's agenda — which included tax reform, deregulation and fiscal stimulus — were a key catalyst for the stock market's initial surge following the U.S. presidential election last year.
But investors have rolled back most of these expectations for this year, as the administration has been bogged down by personnel changes and a failed attempt at repealing and replacing Obamacare.
"Improvement in business sentiment was widespread following last year's presidential election, but most company managements still have not seen it translate into higher demand," Kostin said.
Brian Moynihan (Bank of America), on July 18:
"The pace of loan growth remains good, but has slowed, driven by both capital markets disintermediation as well as reduced demand from clients as they look for more certainty of economic growth."
Pierre Nanterme (Accenture), on July 22:
"But there is an expectation that indeed the new administration will launch critical reforms in order to boost the business and the economic growth. And this economic reform probably, I would set — the one which are the most important, the healthcare reform, the tax reform, the trade reform, and anything linked to the infrastructure investments. And all of these four were the ones supposed to indeed unleash more growth for the business, so the business could invest and drive more growth."
The CEO insight from Goldman jibes with what the official figures are showing so far this year. Gross domestic product increased at a 1.4 percent annualized rate during the first quarter and at a rate of 2.6 percent in the second. For the third quarter, the U.S. economy is expected to grow at a rate of 3.7 percent, according to the Atlanta Federal Reserve's GDPNow estimate.