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 a PMI at 50 indicates no change.
The US manufacturing PMI for June was 53.5, compared to 52.8 for May. Analysts were expecting the PMI to come in at 53.1. Out of 18 manufacturing industries, 11 reported growth in June.
Out of the ten component indices of the manufacturing PMI, five reported a decline. The backlog of orders index fell the most, by 6.5 points from May. The new orders index, on the other hand, rose to a six-month high value of 56.0, while the employment index rose to 55.5 from 51.7 in May. This means that job additions in the manufacturing sector have been 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.