Nominal bias is lifting business survey readings, but recent improvement is not mainly driven by prices

Overview

This report discusses why US business surveys have remained relatively strong despite the Iran war and a sharp rise in oil prices. Goldman Sachs argues that rising prices may lift headline survey indices through “nominal bias,” but its price-adjustment model shows that nominal bias explains part of the index level and cannot explain most of the recent improvement.

Core views

The core conclusion is that US business survey readings are indeed affected by rising prices received components, and headline indices may overstate the true strength of activity. However, both manufacturing and services still show improvement after removing price effects, with manufacturing in particular remaining in expansion. The report therefore leans toward the view that the resilience in business surveys is not merely a price illusion, but may also reflect genuine improvement in activity.

Analysis framework

Goldman Sachs adjusts headline indices using the prices received components of each business survey, and includes real activity indicators in the regressions to avoid mistaking simultaneous increases in prices and volumes caused by stronger demand for pure price bias. For manufacturing, it uses manufacturing output in industrial production as the real activity control variable; for services, it uses PCE services as the real activity control variable.

Methodology notes

• Macro indicator adjustmentPrice-adjusted business survey tracker

  Nominal bias

  Nominal bias refers to respondents thinking in dollar terms rather than real quantities when answering questions about shipments, orders, and similar items, causing price increases to lift survey index levels.

• Regression controlsRegression adjustment using prices received components

  Removing the impact of prices on headline indices

  The report regresses each survey’s headline index on prices received components and real activity indicators, and uses the estimated results to construct price-adjusted manufacturing and services survey trackers.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• US manufacturing activity

  Core observation target

  Strengths

  After price adjustment, the manufacturing tracker is still clearly higher than last December and remains in expansion territory.

  Weaknesses

  The unadjusted index is affected by elevated prices received components, so the headline reading may overstate the true strength of activity.

  Comparison

  The unadjusted reading is 54.7, while the price-adjusted reading is about 52.3/52.4, showing that price factors contributed part of the level difference.

  Risks

  Oil price shocks, changes in tariff policy, and survey sample volatility may affect subsequent readings.

• US services activity

  Core observation target

  Strengths

  After price adjustment, the services tracker remains slightly above 50, showing no obvious contraction.

  Weaknesses

  The degree of improvement since last December is very small, rising only 0.1pt after price adjustment.

  Comparison

  The unadjusted reading is 52.2, while the price-adjusted reading is 51.8; the price bias effect is smaller than in manufacturing.

  Risks

  If consumer sentiment is dragged down by gasoline prices, services demand and survey confidence may come under pressure.

• Oil prices and prices received components

  Explanatory variable and source of risk

  Strengths

  Price components help identify the nominal price effect embedded in headline survey indices.

  Weaknesses

  Rising prices may reflect costs or nominal bias, but may also occur alongside genuine demand improvement, creating interpretive ambiguity.

  Comparison

  The report uses prices received rather than prices paid because the former is more directly linked to shipments and orders of respondents’ own products.

  Risks

  If the Iran war and rising oil prices persist, they could simultaneously affect inflation, consumer sentiment, and business confidence.

Key data

• Manufacturing survey tracker, unadjusted54.7; up 5.0pt from December 2025April reading; the report says May is also likely to remain solid based on survey signals already released.
• Services survey tracker, unadjusted52.2; up 0.2pt from December 2025April reading; the improvement in services is clearly smaller than in manufacturing.
• Manufacturing survey tracker, price-adjusted52.3/52.4; up 4.2pt from December 2025Different sections of the original text cite 52.3 and 52.4; the shared meaning is that it remains in expansion territory after removing price effects.
• Services survey tracker, price-adjusted51.8; up 0.1pt from December 2025Still slightly above 50 after price adjustment, but with very limited recent improvement.
• Prices received componentsManufacturing at the highest since August 2022; services at the highest since May 2023April readings, and the report believes they may rise further in May.
• New York Fed Empire manufacturing surveyUp 8.6pt in May, reaching the highest since April 2022Used to show that preliminary signals for May manufacturing surveys are strong.
• S&P US Manufacturing PMIMay flash reading rose to the highest since May 2022Together with other manufacturing surveys, this supports the view that manufacturing survey readings remain solid.

Impact & implications

The investment implication is that when interpreting US business surveys, one cannot look only at headline indices and must distinguish between nominal price effects and genuine improvement in activity. If prices received components continue to rise, headline survey readings may continue to appear stronger than they are; however, the current price-adjusted results still support some real improvement in US manufacturing.

Risks

• Headline business survey indices may overstate the true strength of activity because of nominal bias.
• The Iran war and a sharp rise in oil prices may suppress demand and weigh on business confidence.
• Prices and real demand may rise simultaneously; if the model does not control adequately, it may misjudge the contribution of price factors.
• The May assessment is partly based on preliminary in-month survey signals, and later full data may revise the picture.

What to watch

• Full May and subsequent readings for manufacturing and services surveys.
• Whether prices received components in business surveys continue to rise.
• Real activity indicators such as manufacturing industrial production and PCE services.
• Changes in oil prices, gasoline prices, and consumer sentiment.
• Whether fading tariff headwinds, manufacturing incentive policies, and AI capital spending can continue to support manufacturing.