US Manufacturing PMI Slows for 2nd Month; Gold Hits $2340

Due to high borrowing costs, limited corporate equipment investment, and weak consumer spending, the U.S. manufacturing industry is struggling to gain momentum for growth.

A survey on Monday revealed that U.S. manufacturing activity slowed for the second consecutive month in May, as the decline in new orders reached the largest drop in nearly two years.

The Institute for Supply Management (ISM) Manufacturing PMI for May fell to 48.7 from 49.2 in April, marking the lowest level in three months and a second consecutive month of decline.

Following the release of the data, gold briefly rose above the $2,340 mark; the U.S. dollar index fell nearly 30 points in the short term.

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For over a year, the factory sector has been under pressure, with the ISM production index contracting for 18 out of the past 19 months.

At the beginning of this year, there was widespread hope that the Federal Reserve would begin cutting interest rates in the middle of the year, but higher-than-expected inflation in the first quarter forced Federal Reserve officials to postpone this expectation. The market currently believes that the Federal Reserve may start cutting rates as early as September.

With borrowing costs at their highest level in about 20 years, the manufacturer's new orders index saw the largest decline since June 2022, dropping 3.7 points to 45.4, the lowest in a year.

Factory input costs have accelerated again this year after a significant decline for most of 2023, but May data showed that the ISM price paid index fell from the highest level since June 2022 at 60.9 to 57, still the second-highest level in about two years.

Additionally, factory employment saw growth for the first time since September last year, breaking away from the sluggish state that has persisted for most of the past two years, indicating that producers have had greater success in competing for labor.

Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said in a statement, "Demand remains elusive as businesses show reluctance to invest due to the impact of current monetary policy and other environmental factors."These investments include supplier order commitments, inventory building, and capital expenditures.

These data indicate that due to high borrowing costs, limited corporate equipment investment, and weak consumer spending, the U.S. manufacturing industry is struggling to gain momentum. At the same time, producers are fighting against rising input costs.

In addition to tonight's PMI data, gold investors will also pay attention to the ADP employment report released on Wednesday and the non-farm data released on Friday. UBS analyst Giovanni Staunovo said:

"We still expect the slowdown in U.S. economic data to allow the Federal Reserve to start cutting interest rates later this year, which will boost gold prices."