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US Economy Slows to 1.9 Percent in Third Quarter: Commerce Department

GDP growth avoided the steeper dropoff feared by economists but the US-China trade war still walloped the business sector, according to Commerce Department data.

AFP

Updated:October 30, 2019, 9:41 PM IST
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US Economy Slows to 1.9 Percent in Third Quarter: Commerce Department
File photo of US Flag/Reuters

Washington: The American economy slowed a touch in the third quarter but remained solid, thanks to a pickup in home sales and steady consumer spending, government figures showed Wednesday.

GDP growth avoided the steeper dropoff feared by economists but the US-China trade war still walloped the business sector, according to Commerce Department data.

The steady expansion offered President Donald Trump a measure of relief for his economic agenda, which has failed to produce the three percent growth he touted.

The economy expanded 1.9 per cent in the July-September period, well above economists' expectations but a notch lower than the 2.0 per cent growth seen in the second quarter.

The result, which is subject to revision, muddies the waters a bit for the US Federal Reserve, which later Wednesday is expected to announce a third consecutive interest rate cut in the effort to buoy flagging growth amid the uncertainty caused by Trump's trade wars.

"The Greatest Economy in American History!" Trump tweeted an hour before the data was released.

But while the White House may breathe a sigh of relief, the details also offered a few reasons to gasp.

Rattled by the uncertainty of Trump's trade wars and a global economic slowdown, business investments tumbled the most in nearly four years, according to the report.

The decline in investments in structures -- stores, offices, factories and hotels -- accelerated to their second straight double-digit drop.

Consumer spending, a mainstay of the economy, remained solid but slowed ahead of the holiday season, with spending on durable goods like autos and computers cut nearly in half, the data showed.

The housing sector, meanwhile, was a bright spot.

After dragging on the economy for a year and a half, spending on new and existing homes jumped higher as would-be home owners pounced on attractive mortgage rates in recent months.

Exports also recovered slightly, posting a modest increase and adding somewhat to growth after tumbling in the second quarter.

A slowing global economy has hit foreign demand for US goods and services, raising fears the world's troubles could wash up on US shores.

The Fed has rolled back some of the increases in the benchmark lending rate implemented last year when the economy was strengthening, but if GDP growth holds up it makes the decision on the next step more complex.

A minority of voices among Fed policymakers say the slowdown this year is merely the economy cooling back to a more normal pace as the boost from tax cuts and fiscal stimulus fades, which reduces the need for more stimulus.

And a key measure of inflation in the GDP report -- personal expenditure prices excluding food and fuel -- surpassed the Fed's two percent target, rising to 2.2 per cent the highest level since the start of 2018.

Accelerating inflation will reinforce the arguments of Fed hawks who oppose further rate cuts but are unlikely to silence Trump's loud demands for stimulus from the central bank.

Some analysts continue to think the economy is poised to weaken further, but others caution that special factors may have be exaggerating the worrisome signs.

"In short, growth has slowed, but it is still not especially weak," said economist Jim O'Sullivan of High Frequency Economics.

"The drop in business investment in equipment is attention-grabbing, but weakness is being exaggerated by Boeing's problems."

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