(Kitco News) Gold was trading near daily lows as momentum in the services sector was weaker than expected in December, according to the latest data from the Institute of Supply Management (ISM).
The non-manufacturing purchasing managers’ index was at 62% last month, down from November’s all-time high of 69.1%. The 7.1 percentage point decline surprised markets, with consensus forecasts for the index to come in at 66.9%.
Readings above 50 are considered a sign of economic growth – the higher or lower an indicator is above or below 50, the higher or lower the rate of change.
Despite the weaker than expected December figure, the data was still strong. “Economic activity in the services sector increased in December for the 19th consecutive month, with the services PMI index exceeding 60% for the 10th consecutive month,” the report said.
The new orders sub-index stood at 61.5% after November’s high of 69.7%. The sub-index of business activity stood at 67.6% against 74.6% recorded the previous month. The employment index was 54.9% against 56.5% in November. Economists are watching the latter figure closely as an indicator of the employment situation in the country.
Survey feedback pointed to labor shortages, according to the report. “The ‘Great Resignation’ is hitting us, and we are struggling to fill positions in a timely manner. With fast food restaurants offering signing bonuses and high salaries for lower level jobs, we need to review our policies and incentive programs… Not enough potential employees in the pipeline/employees leaving for other opportunities at higher salaries.”
Meanwhile, inflationary pressures continued to build, with the price index marking its third-highest reading on record at 82.5%, from 82.3% in November.
Gold was unable to pare some of its daily losses after the data came out and February Comex gold futures last traded at $1,789.60, down from 1.95% on the day.
“Gold and silver prices fell sharply overnight, following the Federal Reserve’s FOMC minutes released Wednesday afternoon. The Fed minutes indicated that a labor market US “very tight” and rising inflation could force the central bank to raise interest rates even sooner than many had already expected and begin to reduce its overall asset balance sheet,” he said. said Kitco senior analyst Jim Wyckoff.
Analysts are not ruling out further declines in the US service sector due to the rise of the omicron variant.
“The drop in the ISM services index…only reverses the inexplicable surge of the previous two months. The index remains at a very high level by historical standards. That said, we suspect it continues to brush an overly optimistic picture of activity, especially given the potential hit from the spike in Omicron infections,” said Andrew Hunter, senior U.S. economist at Capital Economics. “The biggest concern is that the wave of absenteeism that result will cause a significant (albeit hopefully short-lived) impact on labor supply, reducing output in the manufacturing and service sectors.”
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