Goldman Sachs: US manufacturing survey beats expectations as September construction spending falls sharply

Why did the manufacturing survey beat expectations?

The US ISM manufacturing index rose to 55.5 in October from 54.5 the previous month, exceeding both Goldman Sachs’ forecast and the market median forecast of 54.5. The new orders index rose 0.2 points to 55.5, and the production index rose 2.3 points to 59.0; the employment index fell 0.3 points to 52.4.
A machinery industry respondent to the survey said AI infrastructure construction and defense-related spending had boosted business conditions, reflecting continued strength in some manufacturing demand.

The final S&P Global US manufacturing PMI for October was revised down 1.1 points from the earlier reading to 54.9, below the market median forecast of 56.0; the output, new orders and employment components were all revised lower. Taken together, the two surveys suggest to Goldman Sachs that activity is growing at a healthy pace, with no signs of a significant acceleration to well above trend.
The ISM prices paid index fell 2.7 points to 75.2 after rising sharply in September, but respondents continued to cite inflationary pressures, commodity price volatility and material shortages. Average lead times for production materials rose to 87 days, above the 2019 average of 67 days but below the peak of 100 days in July 2022.

Seasonally adjusted nominal US construction spending fell 1.9% month over month in September, far below Goldman Sachs’ forecast of 0.2% growth and the market median forecast of 0.3% growth; the increase for August was revised up 1.1 percentage points to 2.0%.
Almost all of the decline came from private residential improvement spending, which fell 13% month over month, the largest drop on record for the series. However, this component has been highly volatile this year, with an average absolute monthly change of 6% over the past six months.
Other areas were steadier: private single-family residential spending was flat, multifamily residential spending rose 0.1%, and total nonresidential construction spending increased 0.6%. Construction costs rose 0.3% over the same period, leading Goldman Sachs to estimate that real construction spending fell 2.1%.

Following the data releases, Goldman Sachs left its US fourth-quarter GDP tracking estimate unchanged, forecasting annualized quarter-over-quarter growth of 1.8%. The bank also set its GDP tracking estimate for the quarter just ended at 3.4% growth, unchanged from its initial estimate after rounding.