According to the Commerce Department, orders for goods produced in U.S. factories dropped by 0.4 percent in April. What does it mean for the U.S. economy and the gold market?
Factory orders were down for the eighth time in nine months (quite long for transitory weaknesses, right?). This depressing string was only interrupted by the March gain caused by the large swing in civilian aircraft. Moreover, new orders for manufactured durable goods were revised downward, from -0.5 percent to -1.0 percent. There was no change in shipments, while inventories increased 0.1 percent. However, inventories of manufactured durable goods rose 0.2 percent to $401.6 billion in April, the highest level since the series was first published on a NAICS basis in 1992.
Another weak month suggests that U.S. manufacturing is still struggling with the stronger greenback, lower oil prices and weak global demand. This is for sure not good news for the economy, since manufacturing is central to it, despite all the talk about manufacturing accounting for about 12 percent of the U.S. economy. Manufacturing is the most important cause of economic growth. There simply cannot be sustained, long-term development without robust manufacturing. People are becoming wealthier when they have more goods and services. These goods have to be manufactured. Even services are mostly only the act of using manufactured goods. And services cannot be traded in the same manner as goods (80 percent of world trade is merchandise trade). So even though current economic growth is supported by services, weak factory activity, especially in durable goods, will be a drag on future growth.
There is also some positive headline news for the U.S. economy. The automobile sales rose in May to 17.79 million units, the highest rate since July 2005. Investors should be, however, aware that people are buying more cars thanks to expanding cheap auto loans.
A perhaps more important piece of data released ahead of the Friday’s non-farm payroll report is the ADP employment report. According to it, private-sector employment increased in May as businesses added 201,000 jobs (compared to 169,000 in April), the most in four months. Although the employment in manufacturing sector declined by 5,000, the overall tone of this report was quite positive and this could be negative for the gold market.
Summing up, current growth in the U.S. economy (and employment) is driven almost entirely by services, while manufacturing is still suffering. This casts doubts on sustained and long-term economic growth in the future, however, the current positive headlines may have worsened the sentiment toward gold. Much will depend on today’s payroll report. Stay tuned!
Thank you.
Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor
Gold News Monitor
Gold Trading Alerts
Gold Market Overview
