U.S. manufacturing sector contracts for the seventh month in a row, gold price edges down with focus on employment

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(Kitco News) The gold market edged down after the latest U.S. manufacturing sector data.

The Institute for Supply Management (ISM) manufacturing index was at 46.9% last month, which was slightly worse than market consensus calls of 47%. The May figure was also 0.2 percentage points lower than April’s 47.1%.

Readings above 50% in such diffusion indexes signify economic growth and vice-versa. The farther an indicator is above or below 50%, the greater or smaller the rate of change. April marked the sixth consecutive monthly contraction.

Following the release, gold prices retreated from daily highs, with August Comex gold futures last trading at $1,991.80, up 0.49% on the day. 

The employment index reported another month of expansion, up 1.2 percentage points to 51.4% in May, which is what gold reacted to. This comes ahead of the highly anticipated April nonfarm employment report to be released Friday.

The index for new orders remained in contraction territory, falling by 3.1 percentage points to 42.6%.

The prices index fell into contraction territory, down nine percentage points to 44.2% from April’s figure of 53.2%.

“The U.S. manufacturing sector shrank again, with the Manufacturing PMI® losing a bit of ground compared to the previous month, indicating a faster rate of contraction,” said Timothy Fiore, Chair of the ISM Manufacturing Business Survey Committee. “Of the six biggest manufacturing industries, only one — Transportation Equipment — registered growth in May.”

The May manufacturing report suggests a potential pause at the June 13-14 Federal Reserve meeting, said Capital Economics deputy chief U.S. economist Andrew Hunter.

“The resilience of the hard activity data in April was not the start of an improving trend and that a recession over the coming months is still a significant risk,” Hunter said. “In that environment, there is still plenty of justification for the Fed to pause interest rate hikes at the FOMC meeting later this month.”