(Kitco News) - After a slow start in the early morning hours, gold prices have pushed into positive territory as the U.S. economy continues to slow momentum, with the service sector falling into contraction territory.
The Institute for Supply Management (ISM) announced on Wednesday that its Services Purchasing Managers Index dropped to 49.9% in May, compared to the previous reading of 516%. The headline number was weaker than expected, as consensus estimates were looking for an increase to 52%.
This is the first contraction in the services sector since July 2024.
The gold market has been trading in a relatively quiet range early in the trading day; however, the disappointing economic data has supported investment safe-haven demand. Spot gold last traded at $3,365 an ounce, up 0.36% on the day.
“Ten industries reported growth in May, down one from the 11 industries reported in April. The Services PMI has contracted in only four of the last 60 months dating back to June 2020,” said Steve Miller, Chair of the IISM Services Business Survey Committee.
However, Miller also noted that although activity in the service sector is slowing the threat of a recession remains relatively low.
“May’s PMI level is not indicative of a severe contraction, but rather uncertainty that is being expressed broadly among ISM Services Business Survey panelists. The average reading of 50.8 percent over the last three months still indicates expansion in that time period, but it is a notable shift of 2 percentage points below its average of 52.8 percent over the previous nine months,” he said.
Looking at the components of the report, Business Activity Index dropped to 50%, down from April’s reading of 53.7%; at the same time, the New Orders Index fell to 46.4%, down from 52.3% reported in the previous month.
Along with slowing activity, the report also noted that inflation pressures remain elevated. The Prices Index rose to 68.7%, up from 65.1% reported in April.
One bright spot in the report is that the labor market remains relatively stable, the Employment Index rose to 50.7%, up from April’s reading of 49.%.
