Ongoing improvement trend in US to endure into 2016

US firms continue to use financial efficiency to boost profitability. This sees corporates borrow to buyback shares and engage in M&A activity instead of undertaking real investment in new capital.

On the whole, stripping away the impact of inventories and net exports, the past two years have seen a material improvement in the growth trend. This acceleration has primarily been the result of stronger consumption growth, particularly within the services subsector and in housing construction. 

"Given the ongoing improvement in the labour market and credit availability as well as robust consumer confidence, this trend should endure into 2016. For the FOMC, this provides a strong argument to begin the normalisation process in December, despite headline inflation being well below target", says Westpac.

A better underlying demand backdrop for the first rate hike seems unlikely. How growth responds to the first hike will dictate the scale and timing of the overall normalisation process.