Slower activity abroad to weigh on US trade and inventories

Along with US' private consumption, growth in business investment underpinned import growth of 4.5% during the quarter. 

Exports, however, have not kept pace as activity abroad has softened since mid-year and the effects of past dollar appreciation continue to filter through. Together, healthy import growth and stagnant exports suggest that net trade will subtract 0.7pp from GDP growth in the advance release. 

Elsewhere, inventory accumulation looks to have slowed sharply during the quarter, data through August suggest a broadbased slowing in inventories, which is estimated to subtract 1.4pp from GDP growth.

Inventory growth had been well above its 12-quarter trend since the middle of last year, and the slowing in inventory accumulation mainly reflects the sharp slowdown in domestic manufacturing. 

"Under normal conditions an acceleration would be expected in production once demand reduced inventories to levels that firms found more acceptable. However, data on core capital goods orders and shipments suggest that the reduction in inventory building is likely to extend through year-end", says Barclays. 

Core capital goods orders less shipments tend to lead inventories by about three months. This measure turned negative around mid-year, implying the need for less inventory accumulation beginning in Q3. 

Since then, the gap has narrowed, suggesting that the inventory slowdown may last several more months, but is unlikely to be a drag on growth past year-end.