U.S. Productivity Growth Slows, Lifting Unit Labor Costs

Output per hour in the nonfarm business sector grew 2.2% (SAAR, 1.3% y/y)) in Q3'18 following a 3.0% gain in Q2. A 2.0% rise had been expected in the Action Economics Forecast Survey. Nonfarm business output rose 4.1% (3.7% y/y) following a 5.0% increase while hours-worked improved 1.8% (2.4% y/y) after a 2.0% gain.

Unit labor costs rose 1.2% (1.5% y/y) last quarter and reversed a 1.0% Q2 decline. A 1.1% increase had been expected. Compensation grew 3.5% (2.8% y/y) following a 1.9% increase.

In the manufacturing sector, productivity edged 0.5% higher (1.3% y/y) after a 1.2% rise. Output increased 3.4% both q/q and y/y after a 2.6% gain. Hours-worked grew 2.9% (2.1% y/y) following a 1.4% rise.

Unit labor costs in the factory sector rose 0.9% both q/q and y/y after a 0.1% uptick. Compensation grew 1.5% in Q3 (2.2% y/y) after a 1.3% improvement.

The productivity & cost figures are available in Haver's USECON database. The expectations figures are from the Action Economics Forecast Survey and are found in the AS1REPNA database.

The ISM composite index of activity in the factory sector decreased to 59.8 in September from 61.3 in August. A reading of 60.1 was expected in the Action Economics Forecast Survey. During the last ten years, there has been a 74% correlation between the index level and q/q growth in real GDP.

The September decline in the overall index resulted mainly from a slowdown in the growth of new orders to 61.8 from 65.1 in August. The supplier deliveries index also declined, marking 61.1 following 64.5; this means deliveries were faster because activity was less rigorous. Inventories also eased, dipping back to 53.3 from 55.4.

On the other hand, production did improve a bit, to 63.9 in September from 63.3 in August, and again set a high since January's 64.5. The improvement was indirect, as fewer companies reported lower production, thus adding to the net result. The employment component was also positive, edging up to 58.8 from 58.5; that gain was actually seasonal, as the survey responses before seasonal adjustment showed a small decrease in companies with higher employment and a modest rise in companies with lower employment. During the last ten years, there has been an 85% correlation between the level of the employment index and the m/m change in factory sector payrolls.

The prices paid index, which is not part of the overall index, fell again in September, reaching 66.9 from August's 72.1 (NSA). The September figure is the lowest level since August 2017. It includes a fall in the percentage of companies paying higher prices to 42.3%, the first count below 50% since January and the lowest since last December. The percentage facing falling prices increased to 8.6% from 6.8% in August.

Amongst the other ISM series which are not in the composite, order backlogs eased to 55.7 in September from 57.5 the month before. Export orders showed a small gain to 56.0 from 55.2 and import orders rose to 54.5 from 53.9. This held the import order series to the lower range of the previous couple of months after the second quarter's average of 57.0. Companies' lead-times for ordering production supplies remained relatively long, as they edged down to 68 days from August's 69 days, but these compare to averages of 61 days in 2016 and 2017. So there remains some extra lag in the acquisition of supplies, suggesting that activity is relatively strong.

The ISM figures are diffusion indexes where a reading above 50 indicates expansion. The figures from the Institute for Supply Management can be found in Haver's USECON database; further detail is found in the SURVEYS database. The expectations number is available in Haver's AS1REPNA database.

Forward momentum in building activity continues to slow. The value of construction put-in-place improved 0.1% (5.8% y/y) during July following a 0.8% decline in June, revised from -1.1%. A 0.4% increase was expected in the Action Economics Survey.

In the private sector, the slowdown has been pronounced. Activity eased 0.1% after a 0.5% June decline. The 5.1% y/y gain compares to 7.1% growth last year, a 9.2% increase in 2016 and double-digit growth during each of the prior four years.

Residential building activity increased 0.6% (6.6% y/y) during July after declines during the prior two months. Single-family construction fell 0.3% (+6.0% y/y) after declining in three of the prior four months. Multi-family construction fell 0.4% (+1.1% y/y) after a 2.4% drop. To the upside was home improvement activity, rising 2.1% (9.4% y/y). That gain, however, followed a string of declines.

Nonresidential construction in July fell 1.0% (+3.2% y/y) after a 0.1% uptick. The value of commercial building activity was off 3.4% (+0.5% y/y) after a 0.2% increase. Health care building declined 2.2% (-1.9% y/y), down for the fifth straight month. To the upside was the value of transportation building, increasing 2.7% (21.5% y/y) after a 3.7% increase. Factory sector construction increased 0.6% (-4.4% y/y) following a 1.5% rise.

Construction activity in the public sector increased 0.7% (8.3% y/y) in July after a 1.7% decline. Power facility construction strengthened 2.8% (12.1% y/y) as it followed an 8.3% decline. Highway and street building, which accounts for about one-third of nonresidential building, rose 0.4% (3.9% y/y) following a 1.5% decline. Commercial construction rose 0.7% (23.7% y/y) after a 5.8% jump. Weakening by 1.9% (+33.7% y/y) was office construction as it came after a 1.9% decline.

The construction spending figures, some of which date back to 1946 (e.g., public construction figures), are in Haver's USECON database and the expectations figure can be found in the AS1REPNA database.

Sales of light vehicles totaled 17.44 million units (SAAR) in September, up 4.3% on the month but down 4.0% on the year. August's sales had been 16.72 million. The September results were the strongest since November 2017, when they were 17.64 million.

Passenger car sales rose 5.3% last month to 5.41 million units; despite this rebound, the longer-term trend in car sales put them down 18.9% from a year ago. Sales of domestically made cars almost exactly reversed their August decline, as they rose 3.8% in September to 3.91 million units, off 19.1% from a year ago. Sales of imported passenger cars rose 8.9% to 1.49 million units, but that is still down 18.8% from September 2017.

Light trucks, which of course include SUVs and widely used pick-up trucks, advanced 3.9% in September to 12.03 million units from 11.58 in August and were up 4.7% from September 2017's 11.49 million units. Sales of domestically made light trucks rose 2.8% to 9.63 million units, although that was up just 2.0% from the year-ago volume. Sales of imported light trucks reversed an August decline as they surged 8.6% in September (16.9% y/y) to 2.40 million, a new record.

Trucks' share of the U.S. vehicle market eased slightly to 69.0% last month from August's record 69.3%; this compared to 63.3% during all of last year and 48.8% during all of 2012.

Imports' share of the U.S. vehicle market rose to 22.4% last month. Imports' share of the passenger car market increased to 27.5%. Imports share of the light truck market went up to 20.0% from 19.1% in August.

U.S. vehicle sales figures can be found in Haver's USECON database. Additional detail by manufacturer is in the INDUSTRY database.