(Kitco News) – The U.S. service sector, although a bright spot in the U.S. economy, lost momentum last month, according to the latest data from the Institute for Supply Management (ISM).
Wednesday. The ISM said that its non-manufacturing Purchasing Managers Index showed a reading of 53.5%, down from December’s reading of 55.8%. The reading was also weaker than expected as consensus forecasts were calling for a level around 55.1%.
Readings above 50 are seen as a sign of economic growth; the farther an indicator is above or below 50, the greater or smaller the rate of change.
“The majority of the respondents’ comments are positive about business conditions; however, there is a concern that exists relative to global conditions, stock market volatility, and the effect on commercial and consumer confidence,” the report said.
Looking at the components of the report, the business activities index fell to a reading fo 53.9%, down sharply from the previous reading at 59.5%, at the same time the new orders index fell to 56.5%, compared to 58.9% seen in December.
The closely watched employment component – used as a predictor for Friday’s nonfarm payrolls data – shows some softening in the labor market. The employment index fell to 52.1%, down from December’s reading of 56.3%.
The service sector is also seeing a drop in prices pressures as the prices index fell to 46.4%, compared to December’s reading of 51%. This is the third time in the last five months, prices have fallen, according to the report.
Royce Mendes, senior economist at CIBC World Markets, said the report did very little to quell concerns surrounding the U.S. economy.
“While the manufacturing sector has been understandably depressed, many had hoped that the rest of the economy wouldn’t be dragged down with it,” he said. “The drop will be another headwind to the Fed’s desire to normalize rates.”
Despite January’s drop, the service sector remains in expansion territory and is holding up better than the manufacturing sector, which fell to a reading of 48.2 in January, deeper in to contraction territory.
The renewed worries of the U.S. economy appear to be supporting the gold market, as prices have pushed higher following the weaker than expected data, as of 10:14 a.m. gold was trading at $1,135.40 an ounce.