Via Financial Times

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US economic growth cooled slightly in the third quarter to reach the slowest pace of 2019 as business investment declined, according to a report that comes just hours before the Federal Reserve is expected to deliver its third interest rate cut of the year. 

Gross domestic product — the value of all goods and services produced by the US — expanded at an annualised 1.9 per cent rate during the quarter ended September 30, according to the commerce department, compared with 2 per cent growth in the second quarter.

However, the overall pace topped economist expectations for a 1.6 per cent growth rate, according a Reuters survey of Wall Street analysts. 

Final sales to domestic purchasers, which groups personal consumption, imports and business investment, grew at a rate of 3.4 per cent, down from 5.8 per cent the previous quarter. 

The report showed that American consumers are slightly more cautious. Personal consumption expenditures, a measure of what households buy, cooled to 2.9 per cent. That is down from 4.6 per cent in the second quarter, but still ahead of economists’ expectations.

Consumers held off on buying more expensive items, such as cars and furniture — both categories showed declines. They also backed off on lower-cost goods, like shoes and clothing, and spent less on recreation and dining out. 

Personal consumption is the last category to feel the effects of a slowdown, but also one watched closely by analysts and the Fed. In the US’s consumer-driven economy, household spending makes up more than two-thirds of GDP. 

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Residential investment, reanimated by two consecutive interest-rate cuts from the Fed, showed signs of life at 5.1 per cent annualised growth in the third quarter, up from almost two years of negative reads. Since the third quarter last year, housing investment has grown 0.18 per cent, the first positive read since the end of 2017.

US businesses, however, continue to hunker down. Nonresidential fixed investment, a measure of what businesses spend on buildings and gear, dropped by an annualised 3 per cent — its worst reading in nearly four years.

“The capex numbers were awful, and a bit worse than we expected,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. The Fed has followed business spending closely this year as an indicator of how confident companies are feeling as they watch the US-China trade war unfold.

The category known as “structures”, which includes offices, hospitals and oil wells among other buildings, showed a sharp 15.1 per cent decline, after an 11.1 per cent fall in the second quarter. This reflected, in part, the drop in global oil prices and consolidation in America’s oil patch, where frackers are holding off on new wells.

Investment in equipment — which includes aircraft parts — declined 3.8 per cent.

“The drop in business investment in equipment is attention-grabbing, but weakness is being exaggerated by Boeing’s problems,” said Jim O’Sullivan, chief US economist for High Frequency Economics, referring to the halt to sales of the 737 Max after two fatal crashes.

The Fed is set to deliver its latest monetary policy decision on Wednesday afternoon with markets expecting policymakers to deliver another quarter-point interest rate cut. The US central bank was divided when it cut rates in September, with two members of the monetary policy-setting Federal Open Market Committee voting against the move and one arguing for a bigger reduction. 

“We will read this afternoon how the Fed views this, but given their general glass-half-full way of looking at the world we suspect it supports the bias among those on the FOMC wanting to end the mid-cycle correction,” said Steven Blitz, economist at TS Lombard.

Market reaction to the report was muted. The S&P 500 was flat at the start of trade, while the US 10-year Treasury yield was down 2.1 basis points to 1.814 per cent. Yields move inversely to price.