WASHINGTON (Reuters) – The U.S. goods trade deficit fell in September as trade tensions restricted the flow of goods, but that did not change views that economic growth decelerated further in the third quarter amid slowing consumer spending and declining business investment.

The report from the Commerce Department on Monday also showed inventories at retailers rising moderately last month, but stocks at wholesalers dropping, leading the Atlanta Federal Reserve to trim its gross domestic product growth estimate for the third quarter by one-tenth of a percentage point to a 1.7% annualized rate. The economy grew at a 2.0% rate in the second quarter, slowing from the January-March quarter’s 3.1% pace.

The economy is losing momentum largely because of a 15-month trade war between the United States and China, which has sapped business confidence and undermined capital expenditure. Though President Donald Trump this month announced a truce in the trade war with China, delaying additional tariffs that were due in October, economists say the longest economic expansion on record remains in danger without all import duties being rolled back.

Trump said on Monday he expected to sign a significant part of the trade deal with China ahead of schedule but did not elaborate on the timing.

Economists, however, remain skeptical of the White House’s so-called Phase 1 trade deal and warned slower economic growth around the world would lead to a global recession.

“America’s trade deficit with the world is narrowing but it’s not because the U.S. is winning and bringing factories and production and jobs back, it’s because the world has stopped trading as much with one another,” said Chris Rupkey, chief economist at MUFG in New York.

“One of the causes of the Great Depression was trade tariffs and it will be a miracle if the world economy can continue to thrive if nations keep throwing up protectionist trade barriers.”

The goods trade gap dropped 3.6% percent to $70.4 billion last month. Exports declined 1.6%, pulled down by plunges in shipments of soybeans, as well as automobiles. Goods imports tumbled 2.3% amid decreases in imports of industrial supplies, capital goods, motor vehicles and consumer goods.

The decline in imports, centered around consumer and capital goods, points to a step down in consumer spending and further contraction in business investment.

“Until trade issues are resolved in a more permanent and comprehensive way, the trade war will remain a drag on the global economy,” said Emily Mandel, an economist at Moody’s Analytics in West Chester, Pennsylvania.

U.S. financial markets were little moved by the data.

WEAK DATA STREAM

The Commerce Department also reported retail inventories rose 0.3% in September after dropping 0.2% in the prior month. Retail inventories, excluding motor vehicles and parts, the component that goes into the calculation of gross domestic product gained 0.3% after slipping 0.2% in August.

But wholesale inventories dropped 0.3% last month after being unchanged in August. With September data in hand, economists at JPMorgan estimated inventories increased at a $44 billion rate in the third quarter after rising at a $69.4 billion pace in the April-June period.

They said that suggested inventories cut off 0.6 percentage point from third-quarter GDP growth. Both trade and inventories were a drag on GDP growth in the second quarter.

The reports on Monday came on the heels of data this month showing a cooling in job growth in September and retail sales dropping for the first time in seven months. Manufacturing output also declined last month in part as a strike at General Motors depressed auto production.

According to a Reuters survey of economists, GDP likely increased at a 1.7% rate in the third quarter. The government will publish its snapshot of third-quarter GDP on Wednesday. The waning stimulus from last year’s $1.5 trillion tax cut package is also constraining growth.

“The projected pullback in the real pace of inventory growth in the third quarter means that inventories could be less of a headwind for growth in the future than we had previously anticipated,” said Daniel Silver, an economist at JPMorgan.

“But prospects for fourth-quarter growth don’t look especially good given weak trajectories for some source data related to capex and consumer spending though September.”

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