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The ISM Purchasing Manufacturer’s Index slipped over 5% for December, lower than anticipated. The Institute for Supply Management report shows continued growth at 54.1%, but at “much lower levels”.

Key Takeaways

• The index dropped from 59.3% to 54.1% compared to the forecast 57.7%.
• The ISM chair described the downward movement as a sharp decline from the month before.
• All main components of the index showed decline, led by new orders.
• This sharp 5.2 point drop has only been exceeded twice since the turn of the century.

The ISM Index missed the mark after reaching a 14-year high in August. The 5.2 drop is the third biggest following two drops during times of crisis – the September 11 terrorist attacks of 2001 and the global economic recession of 2008.

New Orders slumped in December by 11 points, crashing from 62.1% in November to 51.1% in December. The Production Index dropped from 60.6% to 54.3%, while the Employment Index fell from 58.4% to 56.2%. The Prices Index dropped to 54.9% from 60.7% the month before, and inflation pressures also fell, something which often does not bode well for long-term gold prices.

While anything over a reading of 50% is considered growth rather than contraction, the recent report shows a surprising decline in the industry.

A year ago, all the talk was of the market "melt up". Now, it's the more conventional melt down

US factory activity slumps to lowest in 2 years. Manufacturing ISM index posts biggest fall since 2008, and 3rd biggest drop in 35 years.

Apple -9%

US 10y 2.60%

Wall Street -2% pic.twitter.com/hUXQTabbRE

— Jamie McGeever (@ReutersJamie) January 3, 2019

Expert Outlook

“Comments from the panel reflect continued expanding business strength, but at much lower levels,” said Timothy Fiore, chair of the Institute for Supply Management, in statement. “Demand softened, with the New Orders Index retreating to recent low levels, the Customers’ Inventories Index remaining too low — a positive heading into the first quarter of 2019 — and the Backlog of Orders declining to a zero-expansion level.”

Fiore added: “The manufacturing community continues to expand, but at much lower levels and at a sharp decline from November.”

Senior economist at CIBC World Markets Katherine Judge said the reading could lead to overall concerns for the health of the global economy.

“The 54.1 print was the lowest since late-2016 and was well below expectations,” she said. “It also reinforces our below-consensus GDP call for Q4 of 2.3%. The miss will add to negative market sentiment but the index remains entrenched in expansionary territory, indicative of decent growth to end 2018.”

Market Reaction

Gold is trading at session highs, last trading at $1,290.30/oz and up 0.73% on the day with a low of $1,278.94/oz. Positive data from the labor market did little to halt gold’s upward climb, likely fueled by the ISM report in part and by an overall sense of economic uncertainty worldwide.

Turbulent financial markets, Brexit, and the US/China trade war are all contributing factors which are leading to concerns of an overall slowdown in global economic growth, making gold a more appealing investment to those looking for a safe financial haven.