EM slowdown likely to hit U.S. economy

The slowdown in emerging market growth is unlikely to leave the U.S. economy unscathed. The preliminary release of August trade data showed a sharp decline in nominal goods exports with the drop spread across categories. 

The weakness in exports is consistent with the general deterioration in business activity surveys since mid-2014 and seems to confirm the view that US manufacturing activity will struggle against the combined headwinds of a strong dollar and weak global growth, says Barclays. The September jobs report continued this theme, showing gains of only 142k with substantial downward revisions to prior months. 

Offsetting the drag from abroad, the household sector remains healthy and consumption growth should continue to support overall activity, though risks to the household sector have risen. As such, the first rate hike will occur in March 2016, at the earliest, although FOMC members will likely continue to signal that a rate hike this year is possible, says Barclays.