The May 2023 Empire State Manufacturing Survey showed a sharp plummet in New York state business activity. This new release of activity drops in manufacturing data from the New York Federal Reserve gave rise to the already high-performing gold prices.
The general business conditions index fell by 43 points to -31.8 during the month of May, while consensus forecasts only expected a fall to -3.7. New orders and shipments also significantly dropped after the spike from last month.
When looking deeper into the data, the news only gets worse.
Inventories contracted, and delivery times got shorter. For the fourth month in a row, the employment and hours worked figures edged on the low side. Prices went up following the same pace as last month, though capital spending plans slowed.
Following this report compared to previous figures, companies can expect very slow progress in the coming six months. While manufacturing activity jumped in April, it clearly hit a wall in May, given the 43-point plummet. In the Empire State Manufacturing Survey, 17% of respondents reported an improvement in conditions, while 49% agreed that the situation has worsened.
The new orders index dropped by 53 points to -28.0, while the shipments index fell 40 points to -16.4. Both shipments and orders suffered following April’s successes.
The unfilled orders index plummeted to -13.2, delivery times dropped to -5.7, and inventories fell to -12.3. The number of employees stayed negative for the fourth month in a row, hitting -3.3, while the average workweek index hit a disappointing -3.5. The prices paid index barely fluctuated, finalizing at 34.9, and the prices received index stayed at 23.6.
The index for future businesses rose to 9.8, showing that firms do not believe manufacturing activity will increase any time soon. While analysts expect new orders and shipments to increase, the capital spending index continues falling, now to its lowest level in the last three years of 0.9. With weak capital spending and a low technology spending index of 1.9, analysts do not foresee much activity.
“There is an ‘early indication’ that tightening by the Federal Reserve is causing ‘some softening of demand’ but demand is still high, (Fiore) said. Orders books are filled but not expanding so much any longer, he explained. Fiore estimated that about 25 percent of the manufacturing sector (mostly chemical firms and fabricated metal producers) are feeling signs of softer demand,” Max Sato of Mace News explained.
Gold prices gained more leverage with the release of this report. Any hints of economic uncertainty give rise to gold as investors flock toward the shiny precious metal to protect their assets from rising inflation.
“As long as the potential for global recession looms, which we suspect that it will for the remainder of 2023, we believe gold and other precious metals should continue to march higher,” analysts from the Wells Fargo Investment Strategy report explain.
As we face the incoming debt crisis, failing manufacturing activities, rising inflation rates, and banking fears, the idea of a nearing recession only becomes more palpable. The closer we get to a recession, the more gold will rise, given how it performed in previous scenarios.
“Back in 2008, gold proved to be a safe haven and appreciated during the worst months of the financial crisis,” Andrew Mastro, the CFP, president, and founder of Wrought Advisors, explained. “If a U.S. default comes to pass, it’s possible that gold may appreciate in price again as more investors seek out assets perceived as safe.”
While gold has only recently hedged above the $2,000 line, many predict targets of $2,100 to $2,200 by the end of 2023 and prices as high as $2,400 to $2,500 by the end of 2024. With the volatility of today’s market, investors have the unique opportunity to buy in during sudden price dips as gold responds to the unforeseen actions from the Fed and other organizations. A slight dip in pricing now could mean significant gains in just a few weeks, or substantial earnings if held long-term.
Gold reached its yearly high point on May 4 of $2,055 per ounce, though many expect the traction to continue, especially with the new talk of paused interest rate hikes from the Fed. Additional reports, like New York’s slowed manufacturing activity, only give further rise to the precious metal. The second quarter of 2023 could be huge for gold.
As always, investors should consult their financial advisors before making any decisions with their portfolio strategies.