Economy in Q3 grew 1.9% pre cuts

Housing rebound, consumer spending key

Neither trade wars nor stock jitters are deterring American consumers, who continue to prop up the economy.

The economy slowed but still grew solidly in the third quarter as steady consumer spending and a rebound in housing offset another pullback in business investment sparked by trade and global troubles.

The nation's gross domestic product – the value of all goods and services produced in the U. S. – increased at a seasonally adjusted annual rate of 1.9% in the July- September period, following 2% growth in the second quarter, the Commerce Department said Friday. Economists forecast a 1.6% gain.

The report came out just hours before the Federal Reserve cut interest rates on Wednesday, the third decrease in three months in a campaign to ward off a possible recession. The risk of a downturn has eased somewhat in recent weeks after the U. S. and China agreed to a tentative truce in their trade war that likely suspends future tariffs on Chinese imports but leaves existing duties in place.

Also, the risk of a “hard Brexit” that doesn't include trade agreements between Britain and Europe has ebbed. And long- term Treasury bond yields have edged back above short- term rates, reversing a so- called “inverted yield curve” that had signaled a bleak outlook.

But the trade fight is still dampening business confidence and invest

credit cards, home equity lines of credit and adjustable- rate mortgages but also pinching seniors and others who were finally benefiting from higher savings account yields.

Stocks advanced in the wake of the Fed’s policy decision. The Dow Jones Industrial Average rose about 70 points to 27,148, around 3 p. m. ET on Wednesday. The S& P 500 index was virtually flat. Meanwhile, the yield on the 10- year Treasury was stable at 1.8%.

Fed officials have been starkly divided over the flurry of rate cuts, with many supporting them and others preferring more tempered moves or none at all. Wednesday’s decrease was viewed as a milestone because the three reductions since July now equal the three moves the Fed made in both 1995- 96 and 1998.

As during those periods, Fed policymakers have said the economy is performing well and they’re acting to effectively take out insurance against the risk of a downturn. Fed Chair Jerome Powell has called the cuts a “mid- cycle adjustment” rather than a more aggressive effort to lift the economy from a downturn.

Economists, in turn, have been split over whether the central bank on Wednesday would leave the door open to another rate decrease in December or hint that it’s pausing to see how the economy responds to the moves so far.

On the one hand, the economic picture has brightened somewhat in recent weeks. The U. S. and China tentatively reached a truce in their trade war that would suspend additional tariffs. The risk of a “hard Brexit” that leaves Britain without a trade deal with Europe has ebbed. And long- term Treasury rates have edged back above short- term Treasury yields, reversing an “inverted yield curve” that reflected a dim outlook.

Those developments provide ammunition for the Fed’s apparent inclination to take a breather the rest of the year. Fed funds futures markets reckon the odds of another rate cut in December are just 27%.

“We also see the risks to the outlook as moving in a positive direction,” Powell said, citing the developments with the trade war and Brexit.

At the same time, the global economy remains sluggish and existing tariffs by both the U. S. and China are expected to curtail economic growth both through reduced trade and weaker business confidence and investment. Manufacturing, in turn, has been contracting. And while consumer spending remains solid, it has slowed in recent months.

Also, a measure of inflation that strips out volatile food and energy items has picked up recently but remains below the Fed’s 2% annual target, giving the Fed more leeway to trim rates.

President Donald Trump has repeatedly badgered Powell and the Fed on Twitter for not pushing down rates more sharply.

Yet the Fed’s about- face on rates has been head- spinning. Just last year, the central bank raised its federal funds rate four times, capping nine increases since late 2015.

That push was aimed at preventing an eventual spike in inflation and bringing the rate back to normal after it hovered near zero for years after the Great Recession of 2007- 09. The recent spurt of rate cuts has reversed just a third of the hikes.

GETTY IMAGES Steady consumer spending was a key to third- quarter growth.