Capacity utilization breadth improves in the US and Europe, while weakness in China creates divergent multi-industry capex signals

Overview

The report uses global capacity utilization, US equipment leasing and financing, employment and working-hours data, and hiring data to assess the near-term demand and capital expenditure environment for European multi-industry companies. It concludes that the US and Europe show a combination of stable aggregate levels and improving industry breadth, while China has weakened notably; transportation equipment signals are positive, whereas agricultural machinery and energy and electrical equipment signals have weakened.

Core views

The report first treats capacity utilization as a leading indicator of capital expenditure and includes it as a short-term “barometer” in its multi-industry stock-selection toolkit. The toolkit also includes approximately 1,000 high-frequency indicators, medium-term fundamental and valuation screens, and the GS Capex Tracker, which covers approximately 4,000 companies, five-year capital expenditure forecasts, and 25 end markets. Accordingly, the report does not examine only a single macro aggregate; it compares overall utilization in the US, EU, and China, subsector breadth, historical median levels, and the relationship between these indicators and company businesses. The US aggregate signal is stable, while the structural signal is positive. Industrial capacity utilization was 76% in July 2026, unchanged from June and at its 24-year median; 12 of the 16 tracked categories increased sequentially, and 7 were above their long-term median levels. The areas showing the most notable improvement included fabricated metals, aerospace, and machinery; electrical equipment and machinery, which are relevant to Goldman Sachs' coverage, both improved sequentially and remained above their median levels. Specifically, machinery rose from 82.0% to 82.5%, electrical equipment from 86.2% to 86.4%, fabricated metals from 74.4% to 75.1%, aerospace from 73.3% to 73.8%, and trucks from 98.1% to 98.3%. Relatively weak categories included food, chemicals, and mining excluding oil and gas: food declined from 83.8% to 83.3%, chemicals from 72.2% to 71.7%, and mining from 67.6% to 67.3%. Thus, the US is not experiencing a rapid increase in overall demand; rather, aggregate utilization is flat while more subsectors are improving at the margin. Overall EU utilization remains weak, but industry breadth has recovered somewhat. Industrial capacity utilization was 77.9% in the third quarter of 2026, slightly below 78.0% in the second quarter, and has remained significantly below its 24-year median for 14 consecutive quarters; all 12 categories tracked by the report were below their median levels. However, 9 categories increased sequentially. Basic metals rose from 75.3% to 77.3%, paper products from 80.4% to 81.6%, electrical equipment from 78.2% to 79.1%, and machinery and equipment edged up from 78.3% to 78.4%. Categories with larger declines included coke and refined petroleum products, down from 84.7% to 80.7%; trailers and semitrailers, down from 83.2% to 79.8%; basic pharmaceutical products and preparations, down from 71.4% to 70.0%; and computer, electronic, and optical products, down from 80.4% to 79.4%. Based on this, Goldman Sachs believes the sequential direction for European electrical equipment and machinery is positive, but absolute utilization remains below historical median levels and is not yet sufficient to indicate a broad-based recovery in the industrial cycle. China represents the report's most cautious regional signal. Industrial capacity utilization fell from 73.6% in the first quarter to 73.0% in the second quarter of 2026, below its median level; only 4 of 14 categories increased sequentially, and only 2 were above their median levels. Overall manufacturing declined from 73.9% to 73.5%. Improvements were concentrated in computer and communications equipment, nonmetallic mineral products, general-purpose equipment, and automobile manufacturing, which rose from 75.4% to 78.7%, 56.9% to 59.6%, 79.0% to 80.1%, and 70.3% to 70.8%, respectively. Major areas of decline included coal mining, down from 66.4% to 61.2%; chemical products, down from 73.8% to 69.4%; electrical machinery, down from 71.6% to 70.3%; electricity, gas, and water production and supply, down from 71.9% to 70.4%; nonferrous metals, down from 77.2% to 76.2%; and ferrous metals, down from 78.1% to 77.6%. Combined with the report's prior observation that Chinese manufacturing inventories were above through-cycle levels, Goldman Sachs believes this reflects both pressure on local demand and an increased risk that Chinese companies will export competition to Europe and other emerging markets. US equipment leasing and financing data further show divergence among end markets. In August 2026, the transportation equipment momentum index rose from 99.2 in July to 102.4, making it the only major category listed in the report to improve sequentially. Goldman Sachs views this as a positive reading for overall truck demand and for Daimler Truck, Traton, and Volvo, as well as for Alstom and Siemens. Construction machinery was unchanged at 102.8. All other categories declined: agricultural machinery fell from 107.9 to 104.4, which is negative for CNH; industrial equipment declined from 110.7 to 109.0; energy and electrical equipment fell from 109.9 to 107.4, which is negative for ABB, Siemens, Schneider, Legrand, and Prysmian; and medical equipment declined from 100.0 to 99.2. These data imply that willingness to finance transportation equipment has improved, but capital expenditure momentum for industrial and electrical equipment has not strengthened in tandem. Employment data provide another layer of demand validation. In July 2026, US nonresidential construction employment growth increased from 2.4% year over year in June to 3.0%, electrical equipment, appliance, and component manufacturing rose from 2.1% to 2.5%, fabricated metal product manufacturing from 1.1% to 1.3%, and machinery manufacturing from 0.1% to 0.6%; computer and electronic product manufacturing improved from -0.2% to 0.2%. Meanwhile, truck transportation employment remained at -1.2% year over year, and although automobile and parts manufacturing improved from -1.5% to -1.1%, it remained in contraction. The report views weak truck transportation employment as a negative reading for Daimler Truck, Traton, and Volvo, and links weakness in automobile and parts employment to Sandvik and SKF. Working hours were broadly unchanged: the three-month rolling average weekly hours in the US private sector and manufacturing remained at 34.3 and 40.4 hours, respectively, in July; mining and logging increased from 45.6 to 45.8 hours, while construction rose from 39.3 to 39.4 hours. Job postings showed improvement in US manufacturing and engineering roles: the overall US hiring index rose from 101.6 to 101.8 in August, production and manufacturing from 117.6 to 119.3, industrial engineering from 112.3 to 112.8, and electrical engineering from 137.0 to 138.7. Germany's overall hiring index declined from 104.3 to 103.4, but construction rose from 152.1 to 153.8 and electrical engineering from 109.9 to 111.8; the report also notes weaker hiring in French construction, industrial engineering, and production and manufacturing. Finally, the report uses historical correlations between company businesses and macro indicators to identify the stocks that may be affected first by changes in the data. SKF Industrial Division, ABB Electrification, and Sandvik Machining and Intelligent Manufacturing have particularly high correlations with capacity utilization; Signify, Sandvik, and SKF have particularly high correlations with US employment data. These indicators are therefore used primarily as short-term monitoring tools for company orders, revenue, and capital expenditure sensitivity, rather than to generate ratings or target prices on a standalone basis. Overall, improving industry breadth in the US and Europe supports some electrical equipment, machinery, and transportation equipment companies, but low absolute utilization in Europe, demand and inventory pressure in China, and declining financing momentum for agricultural machinery and electrical equipment keep sector signals divergent.

Analysis framework

Goldman Sachs first uses regional industrial capacity utilization to assess the position of the capital expenditure cycle, then compares sequential changes in aggregate levels, the proportion of improving subsectors, and levels relative to 24-year medians. The report subsequently uses the US equipment leasing and financing index to validate end customers' investment willingness, and employment growth, average weekly hours, and hiring indices to validate corporate activity and labor demand. Finally, based on the correlation between company businesses and capacity utilization or employment data, it maps macro signals to specific covered companies.

Methodology notes

• Cycle and Business Conditions FrameworkBusiness Cycle Inflection-Point Analysis

  Using capacity utilization as a leading indicator of capital expenditure

  Capacity utilization reflects the extent to which existing production capacity is being used. The report assesses whether industrial demand is approaching an improving or weakening inflection point through its sequential direction, subsector breadth, and level relative to historical medians, and uses this to monitor future capital expenditure pressure.

• Quantitative/Factor/Portfolio Theory

  Correlation analysis between company businesses and capacity utilization and employment data

  The report compares the historical co-movement between company business performance and macro industry indicators to identify which companies may be more sensitive to changes in the relevant data; SKF, ABB, Sandvik, and Signify are the high-correlation examples highlighted in the report.

• Industry/Sector Analysis Framework

  Cross-validation using equipment leasing and financing momentum and employment and hiring

  The report uses equipment financing willingness, employment growth, working hours, and job postings as high-frequency validation indicators beyond capacity utilization to distinguish the near-term demand direction of end markets such as transportation, agricultural machinery, and electrical equipment.

• Corporate Fundamentals and Financial Framework

  Multi-layer stock-selection tools comprising Barometers, Screens, and the GS Capex Tracker

  The toolkit combines approximately 1,000 high-frequency barometers with screens for ROIC, EPS compound growth, free cash flow, working capital, consensus dispersion, valuation, corporate actions, and ESG, and uses a capital expenditure tracker covering approximately 4,000 companies, five-year forecasts, and 25 end markets to monitor long-term demand.

Asset mapping & comparison

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

• Daimler Truck, Traton, Volvo

  Rising transportation equipment leasing and financing momentum provides a positive reading, but US truck transportation employment remained at -1.2% year over year, creating an opposing negative signal.

  Strengths

  The transportation equipment leasing and financing index rose from 99.2 to 102.4 in August 2026.

  Weaknesses

  US truck transportation employment remains in year-over-year contraction.

  Comparison

  Transportation equipment was the only major leasing and financing category listed in the report to improve sequentially.

  Risks

  If improved transportation financing does not translate into actual transportation activity and employment growth, demand signals may remain divergent.

• Alstom

  The report identifies improving US transportation equipment leasing and financing momentum as a positive signal for the company.

  Strengths

  The transportation equipment index rose from 99.2 to 102.4.

  Comparison

  Transportation equipment momentum outperformed agricultural machinery, industrial equipment, and energy and electrical equipment.

• Siemens

  Improved transportation equipment leasing and financing provides a positive reading, but declining energy and electrical equipment financing momentum provides a negative reading.

  Strengths

  Benefits from the transportation equipment index rising from 99.2 to 102.4.

  Weaknesses

  The energy and electrical equipment index declined from 109.9 to 107.4.

  Comparison

  The company is exposed to both the best-performing and a weakening financing indicator category in the current period.

  Risks

  Signals from different end markets offset each other.

• CNH

  Agricultural machinery leasing and financing momentum recorded the largest sequential decline, which the report views as a negative signal for CNH.

  Weaknesses

  The agricultural machinery index declined from 107.9 to 104.4.

  Comparison

  Agricultural machinery posted a larger sequential decline than the other major categories listed in the report.

  Risks

  Agricultural machinery customers' willingness to finance and invest may continue to weaken.

• ABB

  Declining energy and electrical equipment leasing and financing represents a negative reading, while ABB Electrification has a high correlation with capacity utilization data.

  Strengths

  Electrical equipment capacity utilization improved sequentially in both the US and EU.

  Weaknesses

  The US energy and electrical equipment leasing and financing index declined from 109.9 to 107.4.

  Comparison

  ABB is one of the companies identified by the report as having a particularly high correlation with capacity utilization.

  Risks

  Weakening financing momentum may diminish the positive signal from improving capacity utilization.

• Schneider, Legrand, Prysmian

  The report identifies declining US energy and electrical equipment leasing and financing momentum as a negative reading for these companies.

  Strengths

  Electrical equipment capacity utilization improved sequentially in both the US and EU.

  Weaknesses

  The energy and electrical equipment financing index declined from 109.9 to 107.4.

  Comparison

  Electrical equipment capacity utilization and equipment financing indicators are moving in opposite directions.

  Risks

  End customers' willingness to finance and invest may be weaker than capacity utilization suggests.

• Sandvik

  Its Machining and Intelligent Manufacturing business is highly correlated with capacity utilization, and the company also has a high correlation with US employment data; weak automobile and parts employment represents a negative reading.

  Strengths

  US machinery capacity utilization rose from 82.0% to 82.5%, while year-over-year machinery manufacturing employment growth increased from 0.1% to 0.6%.

  Weaknesses

  Automobile and parts manufacturing employment remained down -1.1% year over year.

  Comparison

  Sandvik is among the companies with high correlations to both capacity utilization and employment data.

  Risks

  Weak demand in China and competitive spillovers into Europe and other emerging markets.

• SKF

  SKF Industrial Division is highly correlated with capacity utilization, and SKF also has a high correlation with US employment data; weak automobile and parts employment represents a negative reading.

  Strengths

  Utilization in US fabricated metals, machinery, and several other industrial categories improved sequentially.

  Weaknesses

  US automobile and parts manufacturing employment remains in year-over-year contraction.

  Comparison

  SKF is one of the companies identified by the report as highly sensitive to both capacity utilization and employment data.

  Risks

  Demand and inventory pressure in China, as well as persistently weak employment in related industrial end markets.

• Signify

  The report notes that the company has a particularly high correlation with US employment data, making employment trends a short-term business monitoring indicator.

  Strengths

  Employment growth improved in US nonresidential construction and electrical equipment manufacturing.

  Comparison

  Signify has a higher correlation with US employment data than most covered companies.

Key data

• US industrial capacity utilization76%, unchanged in July 2026 versus JuneAt its 24-year median; 12 of 16 categories increased sequentially and 7 were above their long-term median levels
• EU industrial capacity utilization77.9% in the third quarter of 2026; 78.0% in the second quarterSignificantly below its 24-year median for 14 consecutive quarters; 9 of 12 categories improved sequentially, but all were below their median levels
• China industrial capacity utilization73.0% in the second quarter of 2026; 73.6% in the first quarterOnly 4 of 14 categories increased sequentially and only 2 were above their median levels
• US transportation equipment leasing and financing momentum index102.4 in August 2026; 99.2 in JulyThe only major end-market category to improve sequentially
• US agricultural machinery leasing and financing momentum index104.4 in August 2026; 107.9 in JulyThe largest sequential decline among the major categories, negative for CNH
• US energy and electrical equipment leasing and financing momentum index107.4 in August 2026; 109.9 in JulyNegative for ABB, Siemens, Schneider, Legrand, and Prysmian
• US nonresidential construction employmentUp 3.0% year over year in July 2026, versus 2.4% in JuneOne of the capital goods subsectors showing the most notable improvement in employment trends
• US electrical equipment manufacturing employmentUp 2.5% year over year in July 2026, versus 2.1% in JuneConsistent with the sequential improvement in US electrical equipment capacity utilization
• US truck transportation employment-1.2% year over year in July 2026, versus -1.2% in JuneStill contracting, representing a negative reading for Daimler Truck, Traton, and Volvo
• US production and manufacturing hiring index119.3 in August 2026; 117.6 in JulyImproving demand for manufacturing and engineering hires in the US

Impact & implications

The report believes the current indicators do not support a synchronized recovery in global industrial demand. Aggregate US utilization is stable and most industries are improving; although the EU has experienced broad sequential recovery, absolute levels remain low, while stronger transportation equipment financing may support trucks and related businesses. Conversely, declining utilization and elevated inventories in China imply pressure on local demand and may affect Europe and other emerging markets through stronger export competition. Declining financing momentum for agricultural machinery, industrial equipment, and energy and electrical equipment also suggests that some capital goods end markets have not yet entered a broad-based upswing.

Risks

• China's industrial capacity utilization declined significantly, reflecting pressure on local demand.
• Chinese manufacturing inventories are above through-cycle levels, potentially prolonging the destocking process.
• Weak Chinese demand may prompt companies to intensify competition in Europe and other emerging markets.
• Declining leasing and financing momentum for agricultural machinery and energy and electrical equipment indicates weakening capital expenditure willingness in some end markets.

What to watch

• Track aggregate changes in capacity utilization in the US, EU, and China, the proportion of improving industries, and levels relative to historical medians.
• Monitor whether the improvement in the transportation equipment leasing and financing index can continue and feed through to truck demand.
• Watch whether financing momentum for agricultural machinery, industrial equipment, and energy and electrical equipment continues to decline.
• Track US employment trends in nonresidential construction, electrical equipment, truck transportation, and auto parts.
• Monitor the subsequent direction of hiring indices for manufacturing, engineering, and construction roles in the US, Germany, and France.
• Watch Chinese manufacturing inventories, local demand, and competitive spillovers into Europe and other emerging markets.