Recession fears are once again gripping financial markets and pushing gold prices higher as sentiment within the U.S. service sector fell more than expected, according to the latest data from the Institute for Supply Management (ISM).
Thursday, the ISM said its nonmanufacturing index showed a reading of 52.6% for September, down from August’s reading of 56.4%. The data was much weaker than expected as consensus forecasts were calling for a reading of 55.1%.
According to reports this is the lowest reading in three years.
Readings above 50% in such diffusion indexes are seen as a sign of economic growth, and vice-versa. The farther an indicator is above or below 50%, the greater or smaller the rate of change.
Ahead of the report, the gold market was holding its own above $1,500 an ounce, recovering from a 2% selloff at the start of the week. The latest economic data has added to gold’s gains. December gold futures last traded at $1,518.80 an ounce, up 0.72% on the day.
Economists and analysts warned that disappointing service sector data could boost recession fears as this is the largest component of the U.S. economy.
The nonmanufacturing data comes just two days after the ISM said that its manufacturing index fell even further into contraction territory, also missing economist expectations.
“The non-manufacturing sector pulled back after reflecting strong growth in August. The respondents are mostly concerned about tariffs, labor resources and the direction of the economy,” said Anthony Nieves, chair of the ISM Non-Manufacturing Business Survey Committee.
Looking at the components of the report, the Business Activity Index dropped to a reading of 55.2%, down from August’s level of 61.5%.
The labor market also lost some momentum in September, with the Employment Index falling to 50.4%, down from August’s level of 53.1%. This indicator is closely watched by economists as it is used as a predictor for Friday’s nonfarm employment report.
Some economists have noted that the miss in the ISM employment data points to downside risk to Friday’s employment report.