(Kitco News) - Gold prices dipped lower after the latest data on the U.S. manufacturing sector showed it improved more than expected, but still remained in contractionary territory.
The Institute for Supply Management (ISM) manufacturing index came in at 49.1% for January, after posting a downwardly revised 47.1% print in December. The data was higher than forecast, as market consensus calls were expecting a reading of 47.4.
Spot gold was trading just below $2,050 per ounce immediately before the 10 am EST release, but fell below $2,043 in the minutes after the ISM data was published. Spot gold last traded at $2,048.69, up 0.47% on the session at the time of writing.
Looking at the components of the ISM report, the employment index fell to 47.1% in January after a revised 47.5% reading in December, while the index for new orders rose into expansionary territory at 52.5% from December’s 47% print.
The prices index also surprised, rising 7.7 percentage points in January to 52.9 from December’s figure of 45.2%. Economists were expecting a reading of 45.9.
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.
“The U.S. manufacturing sector continued to contract, though at a marginal rate compared to December,” said Timothy Fiore, Chair of the ISM Manufacturing Business Survey Committee. “Demand moderatly improved, output remained stable and inputs are accommodative. Demand moderated, with the New Orders Index expanding at a respectable rate, New Export Orders Index in a headwind and Backlog of Orders Index remaining above 40 percent but still in fairly strong contraction territory at 44.7 percent. Also, the Customers’ Inventories Index contracted further, becoming more accommodative for future production. On balance, Output (measured by the Production and Employment indexes) expanded slightly, with a combined 0.1-percentage point upward impact on the Manufacturing PMI calculation.”
Fiore noted that two of the six biggest manufacturing industries, Transportation Equipment and Chemical Products, registered growth in January after none did in December.
“Demand remains soft but shows signs of improvement, and production execution is stable compared to December, as panelists’ companies continue to manage outputs, material inputs and labor costs,” Fiore added. “Suppliers continue to have capacity. Sixty-two percent of manufacturing gross domestic product (GDP) contracted in January, down from 84 percent in December. More importantly, the share of sector GDP registering a composite PMI calculation at or below 45 percent — a good barometer of overall manufacturing weakness — was 27 percent in January, compared to 48 percent in December, and 54 percent in November.”
Among the top six industries by contribution to manufacturing GDP in January, two - Machinery and Computer & Electronic Products - had a PMI at or below 45 percent, one fewer than in December.
