U.S. domestic strength to outweigh external weakness

In the US, the Fed will want to see confirmation that the slowdown in China had no material spill-over effects, either via the dollar, commodity prices or broader financial conditions. This is expected to be the case before year-end. It is assumed that progress on the labor market will continue and view this almost as a given. It is believed that the unemployment rate will drop to 4.9% by the fourth quarter. Achieving full employment should serve as a buffer against any lingering uncertainty on the global economy. But given the Fed's sensitivity to uncertainty, it by no means guarantees a hike. 

Outside of the labour market, the data is likely to be uneven, but generally consistent with above-trend growth. Manufacturing activity will probably suffer renewed weakness on the back of dollar strength and lower energy prices. The latter will also depress business investment. The key to offsetting these drags on growth will be consumption and housing. 

Consumer demand is expected to be boosted by the energy dividend, and note that the positive impact should materialize faster than it did during the winter months. Housing should be relatively unaffected by external events unless there is significant damage to consumer confidence. 

"We expect GDP growth to average above 3% in the second half of the year", says Societe Generale.