financial conditions tighten
Goldman Sachs US Economic Research US Daily: Tightening Financial Conditions Put the Squeeze onGrowth ([Andrew] Tilton)
August 16, 2007
Our GS Financial Conditions Index (GSFCI) has tightened by roughly
60 basis points over the past month. The recent tightening was the
primary reason we shaved our forecasts for GDP growth last Friday.The tightening in the GSFCI almost certainly understates the move
in financial conditions for two reasons: 1) the biggest re-pricings
have occurred in areas not measured by the GSFCI, particularly non- conforming mortgage spreads, 2) in some cases, credit has become
temporarily unavailable at any price.At this point, the move in the GSFCI is much smaller than the
tightening associated with the 1987 stock market crash (344 basis
points at the extremes) and still a bit smaller than the 1998 LTCM
crisis (99 basis points). But the risks to growth clearly are to the
downside and increasing.