(Kitco News) - The U.S. economy continues to exhibit a growing dichotomy, with the service sector expanding while the manufacturing sector contracts, according to the latest data from the Institute for Supply Management (ISM).
On Thursday, the ISM reported that its Services PMI remained roughly unchanged in August, in line with expectations. The index inched up to 51.5%, slightly higher than July's reading of 51.4%.
"The August reading marks the sixth time in 2024 that the composite index has been in expansion territory," said Steve Miller, Chair of the ISM Services Business Survey Committee.
Although activity within the service sector remains positive, Miller noted that the survey still highlights underlying weaknesses not fully captured by the headline number.
"The increase in the Services PMI® in August is attributed to gains in all key components (Business Activity, New Orders, Employment, and Supplier Deliveries), with most readings close to or above 50%," he said. "For the second consecutive month, slow growth indicated by the Services PMI® was corroborated by panelists' comments. Many industries cited slow-to-moderate growth, while persistent high costs and interest rate pressures were often mentioned as factors negatively impacting business performance, leading to softness in sales and traffic."
The economic data had little impact on gold prices, as the precious metal has been unable to surpass initial resistance at $2,550 an ounce. December gold futures last traded at $2,540.30 an ounce, up 0.57% on the day.
In diffusion indexes like these, readings above 50% signify economic growth, while those below 50% indicate contraction. The further an indicator is from 50%, the more significant the rate of change.
Among the components of the index, the Business Activity Index fell to 53.3%, down from July’s 54.5%. Meanwhile, the New Orders Index rose to 53.0%, up from 52.4% in the previous month.
The report also pointed to a cooling labor market, with the Employment Index dropping to 50.2%, down from July’s 51.1%.
Additionally, inflation pressures remain contained. The Prices Index remained relatively stable at 57.3%, slightly up from July's 57.0%.
Stephen Brown, Deputy Chief North America Economist at Capital Economics, noted that while the service sector continues to grow, its pace is slowing.
"Although the ISM Services Index was essentially unchanged in August, this is somewhat reassuring following the weak ISM manufacturing report earlier this week and the Fed's Beige Book, which had a gloomy tone," he said. "Our weighted average ISM index suggests mildly negative GDP growth. There was nothing in the ISM services report to influence the Fed’s decision on whether to initiate its loosening cycle with a 25bp or 50bp cut, which remains dependent on tomorrow's August Employment Report."
