US to see a below-trend growth rather than an outright contraction – TDS

The eye-popping and unexpected decline to below 50 in the ISM Services index on Friday brought again to the fore discussions about the state of the US economy and corresponding mounting recession risks. But strategists at TD Securities believe that the current state of the economy offers no reason to be overly concerned.

A US recession? Don’t count on it yet

“A plunge in the ISM services index in December set off alarms regarding recession risks for the US economy. We think the survey provided more noise than signal this time around.”

“The large decline in the services-activity indicator likely reflected a catch-up lower after overshooting in recent months, rather than signaling a sudden retrenchment in activity. We expect the ISM Services index to rebound in January.”

“Despite worsening signals from soft data, solid labor market conditions and firm consumer spending suggest services activity remains perky. This should offer the Fed room to continue tightening its monetary policy stance over the next few meetings.”