If this goes from being a possibility to something that is highly probable it will mean the Fed will have to once again hold fire, at least until 2016 is out and potentially longer.
The United States services Purchasing Manager’s Index data released today by Markit is one reason to think things are heading in this direction. It makes troubling reading for investors banking on a strong performance from the world’s biggest economy over the coming year.
Weak growth
The data for January showed activity growth eased to its weakest for 27 months, falling to 53.2 from 54.3 in December.
“The US upturn has lost substantial momentum over the past two months, the trend in business activity sliding to the worst for over three years,” said Chris Williamson, chief economist at Markit. “Slower service sector activity, combined with subdued manufacturing growth, means January’s expansion was the weakest seen since October 2012 with the sole exception of October 2013, when business was affected by the government shutdown,” Williamson continued.
“Deteriorating financial market conditions, global growth uncertainties and the upcoming election are all taking their toll, not to mention the strong dollar, which is not only hurting manufacturing but is also hitting the service sector through reduced tourism and travel. While the first quarter may see a rebound in GDP due to technical factors such as an inventory adjustment and weather-related variations, the survey data paint a darker underlying picture of business conditions,” he added.
Saving grace
Legal & General Investment Management economist James Carrick has his concerns, but sees the consumer as a potential saving grace for the American economy.
“The US should remain insulated by strong domestic demand, as long as the turbulence in commodity markets and the emerging economies does not feed through into a broader tightening of US credit conditions,” he said.
