ISM’s purchasing managers’ index
The ISM’s (Institute for Supply Management) PMI (purchasing managers’ index) gauges the factory sector in the US. A number below 50 indicates contraction. A number above 50 indicates expansion, while 50 indicates no change.
The US manufacturing PMI for May was 52.8—compared to 51.5 for April and March. Strong manufacturing activity should help boost economic growth in the US after a weak first quarter. It was marred by transient factors like West Coast ports’ labor strike and severe winter weather.
Out of the ten component indices of the manufacturing PMI, only the index for supplier deliveries was slowing at a faster rate. The new orders index rose to a five-month high value of 55.8, while the backlog of orders index climbed to a six-month high of 53.5. The employment index also jumped to 51.7 in May from 48.3 in April. This means that job additions in the manufacturing sector are quicker.
Why does the manufacturing PMI matter?
Although manufacturing isn’t as large a part of economic growth as it used to be, it’s still a big enough influence. Strengthening manufacturing activity has a fallout impact on other sectors. The labor market is also positively impacted by strong manufacturing activity. The US dollar is also influenced by the state of manufacturing. In turn, this impacts gold prices and gold-backed ETFs like the SPDR Gold Trust (GLD).
Gold stocks—including Goldcorp (GG), Sibanye Gold (SBGL), Iamgold (IAG), and Harmony Gold Mining (HMY)—are also influenced by the strength of the US currency. The same is true for ETFs that invest in these stocks, including the VanEck Vectors Gold Miners ETF (GDX). Goldcorp and Harmony Gold Mining form 7.5% and 1% of GDX’s holdings, respectively.