U.S. Q3 likely to remain healthy on upbeat domestic demand; USD to remain stable, says Barclays

The United States economy is expected to have remained healthy during the third quarter of this year, as strong domestic demand will fuel the country’s economic growth. Also, a lesser amount of downside drag is seen to come from the external sector, with the greenback keeping up stability in the near term.

However, the energy sector continues to decline, while the spillover effects are expected to be smaller. Jobless claims in the world’s largest economy dropped to near 43-year lows, which is indicative of a recovering labor market. Further, solid growth in most states offsets ongoing weakness in mining-intensive states.

Manufacturing is stabilizing as the inventory cycle ends. Consumption growth remains strong, while weak imports pose a risk. However, a strong home and auto sales shows a confident household sector. Also, financial conditions remain accommodative, despite fears of strict trade policies by the President-elect Donald Trump.

Moreover, the Trump administration is likely to add tariffs on Mexico and China and offset that drag with a large tax cut amid moderate spending package. The tax and spending plan offsets what would have been substantially slower growth in 2018.

Meanwhile, the Federal Reserve is likely to hike rates in December, with Bloomberg’s implied probability almost approaching full consent of 100 percent; as of Wednesday, the implied probability of a December rate hike is up 94 percent, from 92 percent on Tuesday. However, no immediate changes to the monetary policy framework are expected.