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Goldman Says 4,000 Calls Show Sour US Business View

Sentiment expressed in public communications by the biggest American companies slumped in June to the lowest level in at least a year, driven by negative mentions of economic growth and international relations, according to a Goldman Sachs Group Inc. analysis.

The report Friday outlined findings drawn from 4,000 earnings and conference call transcripts by S&P 500 companies over a year, and showed that sentiment measured by its index closely tracked Institute for Supply Management reports and regional business activity surveys. The sentiment score was calculated by evaluating the orientation of each word, then measuring the difference between the share of positive words and negative words.“While the negative mentions of uncertainty and profits have increased somewhat, there has been a disproportionate rise in the appearance of growth and international relations in a pessimistic context,” Goldman economist Ronnie Walker wrote in the report. “There has been a sharp increase in negative mentions of our growth topic, which is consistent with slower domestic growth.”Walker noted a “sharp increase in negative mentions” of growth, consistent with slower domestic growth. International relations, including references to foreign countries and trade, were less prominent than other topics, but negative words had surged, “and appeared responsive to the slowdown in global growth and continued escalation of trade tensions.”As an example, Walker cited an earnings call with a particularly negative score from a company that said earnings were “pretty ugly,” with results negatively affected by unexpectedly high losses and severe stock-market declines—language that matches February comments by Loews Corp. Chief Executive Officer James Tisch. A positively scored call noted “overwhelmingly positive” customer response and a “very encouraging” outlook.

ISM’s U.S. factory gauge posted the third-straight decline in June, falling to the weakest level since 2016 as new orders stalled. Federal Reserve regional factory surveys also weakened during the month. At the same time, recent manufacturing gauges for July have picked up. The Philadelphia Fed’s index soared by the most in a decade while New York’s also improved in July.

Despite the preponderance of sour assessments, Walker said the two July manufacturing surveys signal that sentiment may turn a corner, and growth fears are likely to abate given projections for a slight acceleration over the next year as financial conditions improve.

“While we also expect global growth to stabilize and some form of a trade agreement with China, it seems somewhat less likely that the international relations bucket will return to its previous level,” Walker wrote. “Analyst commentary signals a more persistent rise in broad trade war risk, which could continue to weigh on sentiment.”

(Corrects spelling of company name in fifth paragraph.)

Reporting by Jeff Kearns.