US ISM non-manufacturing index drops in January over retail sales weakness

US ISM non-manufacturing index for January dropped to 53.5 from 55.8. The index continues with a sharp downward trend from the July's peak of 59.6. The US Fed officials will be worried that the slowdown in mining and manufacturing is "spilling over" to the rest of the economy, just as it did before the 2001 recession. Hence any possibility of a rate rise in March seems to have faded further.

The decline in the ISM non-manufacturing index might be due to the recent weakness in retail sales. However, much of the slowdown is expected to be because of weather, with sales of motor vehicles recovering in January. This implies that the real consumption growth is expected to accelerate in H1 2016.

The underlying details slowed throughout the board. The business activity index dropped from 59.5 to 53.9, while the new orders component fell from 58.9 to 56.5. The employment index dropped from 56.3 to 52.1, leaving it at a level steady with gains in private services payrolls of about 150,000. The ADP survey, in contrast, indicates that the private payrolls rose 205,000 in January.

"Overall, we acknowledge this is a disappointing development. But we still think the risks of a US recession are low. GDP growth should still be 2.5% this year", says Capital Economics.