U.S. GDP Estimates And EPS Sensitivity For 2014

A report by Goldman Sachs Group Inc (NYSE:GS) last week takes a look at the various estimates for U.S. GDP during 2014 and beyond and presents a study of EPS sensitivity to GDP growth.

GDP growth estimates

On an annual average basis, the midpoint of the Federal Reserve central tendency of GDP growth for 2014 is 2.8%. It is 3.2% in 2015 and 3.0% in 2016.

Goldman Sachs forecasts average annual growth of 2.9% in 2014, up from the 1.8% calculated by annualizing 1H 2013, due basically to the passing of the impact of the 2013 payroll tax increase and the initial sequester phase.

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Other estimates vary from 2.0 to nearly 3.0%.


Due to the inclusion of GDP growth estimates in sales, margins and earnings models, its correct quantification is highly important. According to Goldman Sachs estimates, the EPS sensitivity is $5 per share for every 100bp change in US GDP growth. To illustrate, 100bp shift – $5 per share EPS change- a change of 75 index points in the S&P 500 (based on a 15x P/E multiple).


Outlook on the S&P500

Currently the S&P500 is trading at 15.3x the forward 12-month EPS estimate of $112. Goldman Sachs Group Inc (NYSE:GS) project the S&P 500 (INDEXSP:.INX) 0 at 1750 based on a 2013 year end 10-year Treasury yield of 2.75%.

Sector View

Here is a useful recommendation from Goldman Sachs Group Inc (NYSE:GS) on sectors:


Outlook for the major markets

Given below are quarterly forecasts for important markets: