Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041101b.jpg" width="353">
Personal income grew just 0.2% In September following a downwardly revised 0.1% rise in August. Consensus expectations had been for a 0.3% September increase.
A third consecutive monthly decline in proprietors&#39; income, down 0.4% (+4.9% y/y), generated the disappointment in total personal income growth. Wages &amp; salaries rose 0.4% (+4.6% y/y), the third firm consecutive monthly gain. Manufacturing wages rose 0.3% (2.0% y/y) and wages in private service producing industries rose 0.4% (5.4% y/y).
Personal disposable income rose a scant 0.1% (4.6% y/y) following downwardly revised gains in months prior that have been weak since June. Adjusted for inflation disposable income was unchanged (2.5% y/y). Personal taxes rose 0.6% (5.3% y/y).
&quot;Public Officials and Job Creation&quot; from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/net/20040901/cover.pdf"> here</a>.
Consumer spending rose 0.6% following a slight dip in August that was initially reported as unchanged. Durables purchases recovered most of the prior month&#39;s drop with a 1.6% jump as light vehicle sales jumped 5.5% to the second highest level of the year. Purchases of non-durable goods rose 0.5% (7.3% y/y) and services spending rose 0.4% (5.6% y/y). 
The PCE chain price index ticked up 0.1% as did prices less food &amp; energy (+1.5% y/y).
A recent speech by Fed Vice Chairman Roger W. Ferguson, Jr. titled &quot;Equilibrium Real Interest Rate: Theory and Application&quot; is available <a href="http://www.federalreserve.gov/boarddocs/speeches/2004/20041029/default.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E711/@E71102/@E71102.HTM"> Disposition of Personal Income</a></th>
<th scope="col">Sept</th>
<th scope="col">Aug</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Personal Income</td>
<td>0.2%</td>
<td>0.3%</td>
<td>4.6%</td>
<td>3.2%</td>
<td>1.8%</td>
<td>3.5%</td>
</tr>
<tr>
<td class="firstcol">Personal Consumption</td>
<td>0.6%</td>
<td>-0.1%</td>
<td>5.9%</td>
<td>5.2%</td>
<td>4.6%</td>
<td>4.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Savings Rate</td>
<td>0.2%</td>
<td>0.7%</td>
<td>1.4%</td>
<td>1.4%</td>
<td>2.0%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">PCE Chain Price Index</td>
<td>0.1%</td>
<td>0.0%</td>
<td>2.0%</td>
<td>1.9%</td>
<td>1.4%</td>
<td>2.1%</td>
</tr>
</tbody>
</table>
ISM Factory Index Slipped Unexpectedly 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 1, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041101a.jpg" width="353">
The Institute of Supply Management reported that its Purchasing Managers&#146; Composite Index (PMI) fell in October to 56.8 versus Consensus expectations for no change at 58.5.
During the last twenty years there has been a 70% correlation between the level of the Composite Index and the three month growth in factory sector industrial production.
The Composite Index reflected declines in each of the components except new orders. The employment index (54.8) dropped to the lowest since January and production cratered to the lowest in over a year.
The separate index of export orders rose sharply to 56.6, the highest level since June.
The prices paid index recouped much of the prior month&#39;s decline and rose to 78.5.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF02/@EF02.HTM"> ISM Manufacturing Survey</a></th>
<th scope="col"> Oct</th>
<th scope="col">Sept</th>
<th scope="col">Oct &#39;03</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
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</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>56.8</td>
<td>58.5</td>
<td>57.1</td>
<td>53.3</td>
<td>52.4</td>
<td>43.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>58.3</td>
<td>58.1</td>
<td>64.6</td>
<td>58.1</td>
<td>56.6</td>
<td>46.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>78.5</td>
<td>76.0</td>
<td>58.5</td>
<td>59.6</td>
<td>57.6</td>
<td>42.9</td>
</tr>
</tbody>
</table>
U.S. Construction Spending Down in September 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 1, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041101c.jpg" width="353">
The total value of construction put in place dipped slightly in September as residential building fell for the first month since February 2003. The Consensus expectation for a 0.4% gain.
As hurricanes hit Florida, private residential building activity fell 0.2%. New single family building slid 0.8% (+17.3% y/y) after a 2.3% spurt in August.
Nonresidential building rose 0.2% (+5.7% y/y) as construction activity on shopping malls ballooned 30.7% (6.4% y/y).
Public construction rose 0.3% though spending on highways &amp; streets, nearly one third of the value of public construction spending, fell for the fifth consecutive month (-1.3% y/y).
These more detailed categories represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E907/@E90701/@E90701.HTM"> Construction Put-in-place</a></th>
<th scope="col"> Sept</th>
<th scope="col">Aug</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-0.0%</td>
<td>0.9%</td>
<td>8.9%</td>
<td>5.1%</td>
<td>1.5%</td>
<td>3.5%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>-0.1%</td>
<td>1.5%</td>
<td>10.9%</td>
<td>6.0%</td>
<td>-0.2%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-0.2%</td>
<td>1.8%</td>
<td>13.1%</td>
<td>13.1%</td>
<td>8.4%</td>
<td>3.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>0.2%</td>
<td>0.7%</td>
<td>5.7%</td>
<td>-7.1%</td>
<td>-12.8%</td>
<td>-1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>0.3%</td>
<td>-1.0%</td>
<td>3.0%</td>
<td>2.6%</td>
<td>7.0%</td>
<td>10.7%</td>
</tr>
</tbody>
</table>
</body>
</html>

Personal income grew just 0.2% In September following a downwardly revised 0.1% rise in August. Consensus expectations had been for a 0.3% September increase. A third consecutive monthly decline in proprietors' income, down 0.4% [...]

U.S. Personal Income Gain Light

Apart from Japan, Blue Chip forecasters expect further sizable monetary easing

US production rebounded in Q2, but demand continued to slow

US leader, Germany trailer for real GDP growth over past 3 years

Negative US inflation surprises leading G10 down

Deflation continues in China

Incoming data surprising on downside in US; positive surprises elsewhere

FOMC expects more inflation and less growth than in March

With escalation of Israel/Iran conflict, geopolitical risk has recently surged while US trade policy uncertainty has ebbed

Renewed supply chain pressures point to a rebound in global inflation ahead

Apart from Japan, Blue Chip forecasters look for further significant monetary policy easing

Apart from the US, productivity is moribund

Financial market concerns ebb even though policy uncertainty continues to soar

US tariff revenues nearly doubled in April

Even with expected tariff-induced increases in inflation, BCFF forecasters look for a more aggressive round of monetary easing

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

Wage growth slowing in the US and Euro area; elevated and sticky in the UK

Stagflation-lite: Blue Chip forecasts below-trend growth and elevated inflation

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

US and Japan ended 2024 on solid ground in contrast to Europe

US economy expected to outperform other major economies in 2025

Only modest evidence of AI-related surge in US productivity growth

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Consumer credit outstanding increased $7.4 billion (2.1% y/y) during June after rising an unrevised $5.1 billion in May, and strengthening $16.4 billion in April, revised from $16.9 billion. A $9.0 billion June rise had been expected in the Action Economics Forecast Survey. As a percentage of disposable personal income, consumer credit of 22.4% in June compared to 22.5% in May and 22.9% one year earlier. It reached a high of 26.4% during all of 2017. The figures are reported by the Federal Reserve Board.

Nonrevolving credit outstanding rose $8.4 billion (1.9% y/y) during June after rising $8.9 billion in May, revised from $8.6 billion and an unrevised $9.4 billion in April. Nonrevolving credit held by depository institutions declined 6.8% y/y in June after falling 7.2% y/y in May. Finance company debt holdings eased 0.4% y/y after slipping 0.2% y/y in May, while credit union holdings rose 11.2% y/y in June after a 10.8% y/y May strengthening. Nonrevolving debt of the federal government rose 4.1% y/y in June following a 4.0% y/y rise in May.

In June, revolving credit outstanding, which includes credit cards, fell $1.0 billion (+2.5% y/y) after declining $3.8 billion in May, revised from -$3.5 billion and rising 7.0 billion in April, revised from $7.5 billion. Revolving credit outstanding held by depository institutions fell a steady 2.9% y/y. Revolving credit held by finance companies fell 15.0% y/y after a 14.3% y/y drop in May, while credit union debt rose a fairly steady 4.1% y/y in June.

In Q2’25, student loans rose $8.2 billion (4.2% y/y) while motor loans increased $5.1 billion (0.3% y/y).

The consumer credit figures from the Federal Reserve Board are break-adjusted and calculated by Haver Analytics. The breaks in the series in 2005, 2010 and 2015 are the result of the incorporation of data from the Census and the Survey of Finance Companies, as well as changes in the seasonal adjustment methodology. The consumer credit data are available in Haver’s **USECON** database. The Action Economics forecast figures are contained in the **AS1REPNA** database.

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- Moderate increases in last two months follow strong April gain.
- Nonrevolving credit usage strengthens as revolving credit eases.

U.S. Consumer Credit Picks Up in June

Robert Brusca

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Japan's economy watchers index is showing some rebound after a period of weakness. The economy is not breaking out into sharply improved readings; however, the monthly readings have now increased and improved for three months in a row for both the current and the future indexes. The increase for the current index over three months is 2.6 diffusion points; for the future index it's 4.6 diffusion points. Over 12 months, both readings are still lower on balance.

**Percentile standings-rankings**
Both headline readings are still below their historic medians, but the current index has a 34.8 percentile standing and the future index has a 39.5 percentile standing. The headline queue standings in both cases are below 50%- a reading below 50% indicates a reading below its historic median.

**Diffusion readings**
Current index components all have diffusion readings below their respective 50 marks, which tells us that they're all showing contraction. The surveys show a headline reading of 45.2 for the current index in July, compared to 47.3 for the future index in July. For the current index, all of the component rankings are below 50 for July, June and May. For the future index, there are three readings above 50 in July and none for June or May.

**July’s Future Index improvement**
The improvement in July for the future index is concentrated in eating and drinking places, services, and employment – all are households or individual-linked readings. That may reflect some sense of relief that Japan’s tariff negotiations with the United States were progressing and finally a deal was struck. The future index, in addition to having several diffusion readings above 50 in July, shows three readings that have queue standings, above the 50th percentile, putting them above their historic medians. Those are readings for eating and drinking places, services, and for housing. The reading for housing takes on a 59.3 percentile queue standing even though its diffusion index remains below 50 at 47. In July it moved up to 47, making a relatively sharp gain from a reading of 42.7 in June.

There is, therefore, relatively more evidence of improvement going on in the future index compared to the current index where monthly gains were generally smaller.

**The breadth of improvement**
Month-to-month the current index improved in 60% of the categories in July compared to 70% in May and June. The future index components improved across the board in July, 80% of them improved in June, and gains were across the board again in May. Looking at the changes over three months, six months, and 12 months according to average data, over three months 60% of the current categories improved compared to none over six months and 80% over 12 months. For average future data, 100% improve over three months, none improve over six months and 60% improve over 12 months.

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**Summing up**
The improvement in the most recent months is clear cut, whether it can be sustained is another matter. It likely reflects some release of anxiety over the tension created by the tariff negotiations with the United States; however, the Bank of Japan is still trying to corral inflation, and on the political side the LDP lost its upper house election and Japanese politics is being reorganized. As far as consumer confidence and expectations are concerned, we can expect that a lot is still in flux in Japan.

Japan

Japan’s Economy Watchers Index Rebounds

Andrew Cates

**Capacity pressures in the US and Europe**
Output gaps in advanced economies (the US and euro area) are estimated to have narrowed sharply in recent months and could be on the verge of turning negative. This reflects a prior period of weaker growth and a growing degree of slack in the economy—conditions that typically translate into softer inflation and heightened pressure on central banks to ease policy. Labour markets are certainly showing greater signs of weakness in the US. A big caveat to this is that estimating output gaps is inherently difficult, especially after recent supply shocks and structural shifts in labour markets. Still, most real-time indicators now suggest aggregate demand is slipping below potential. And that, alongside weakening job data, is strengthening the case for further policy easing and hints at continued disinflation in the months ahead.

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**The US housing market**
US housing has long been a bellwether for broader economic conditions, largely because of its deep ties to credit creation, household balance sheets, and interest rates. That’s why the latest data showing a renewed slump in builder sentiment and a more sustained drop in house price momentum has been of note. With mortgage rates still elevated and lending standards – as we discuss below – still tight, the housing sector looks increasingly fragile—raising fresh concerns about the durability of US growth.

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**US bank lending standards**
This week’s latest Fed Senior Loan Officer Survey confirms that US credit conditions remain restrictive. Banks are still tightening lending standards for companies and consumers while loan demand continues to weaken—a pattern historically associated with periods of economic downturn. Although the net percentage of banks tightening standards has eased somewhat from 2023 peaks (see chart below), it remains elevated, and credit demand is now falling across most categories, from small business to commercial real estate. This tightening in credit supply and fall in demand suggests that monetary policy is still transmitting forcefully through the banking sector.

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**Global growth momentum** 
Until recently, global economic surprises and sentiment surveys were broadly supportive, suggesting the global cycle still had momentum. But this week’s Sentix survey revealed a renewed drop in expectations for August. That decline, coupled with a fading Citi Economic Surprise Index, hints that global momentum may be weakening again. As forward-looking indicators start to roll over, investors and policymakers alike should be alert to a potential shift toward a more pronounced downturn.

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**Global shipping costs and supply chain pressures** 
One additional area of heightened investor concern of late has been the potential inflationary fallout from recent US tariff measures. But so far, there is little evidence – at the global level - to suggest that global supply chains or freight costs have been meaningfully disrupted. The Baltic Exchange Dry Index and the NY Fed’s Global Supply Chain Pressure Index both remain relatively subdued, indicating that logistics bottlenecks have not re-emerged.

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**China’s excess capacity**
China’s economic influence remains pivotal in shaping global goods inflation. The latest data show that producer prices in China continue to contract, extending a prolonged period of deflation that reflects both domestic weakness and excess industrial capacity. This ongoing slack not only suppresses China’s export prices but also exerts downward pressure on global manufacturing input costs. At a time when central banks (most notably in the US) are weighing the risk of reacceleration in inflation, China’s persistent deflation in upstream prices acts as a powerful counterforce—reinforcing the view that goods inflation risks could remain subdued for now.

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Last week’s weaker-than-expected US labour market report—marked by sluggish payroll growth, rising unemployment, and downward revisions to prior months—sparked a notable shift in financial markets. Bond yields fell sharply as investors repriced the outlook for Fed easing, with rate cut expectations brought forward. This recalibration arguably reflects growing awareness of mounting downside risks across the US and broader global economy. Several indicators reinforce this view. Output gaps in many major economies are narrowing or turning negative, signalling that demand is falling short of potential (chart 1). The US housing market looks fragile, amidst weak builder sentiment and falling prices (chart 2). US bank lending standards are still restrictive, with implications for credit availability, household and business investment, and overall economic momentum (chart 3). Some (though not all) global sentiment surveys have softened, and positive growth surprises are now fading. Meanwhile, and despite earlier fears, US tariffs have not triggered renewed supply chain stress or inflationary pressures (chart 5). Add to that the ongoing deflation in China’s producer prices, and the macro narrative could be tilting more decisively toward slower growth and diminishing inflation risks—leaving policymakers with more space to continue easing monetary policy (chart 6).

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Charts of the Week: Downside Risks

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Wholesale inventories increased 0.1% (1.3% y/y) during June after falling an unrevised 0.3% decline in May. The rise was revised from a 0.3% increase in the advance release issued last week and matched expectations in the Informa Global Markets survey. Durable goods inventories rose 0.1% during June (0.2% y/y) after falling 0.7% in May. Furniture & home furnishings inventories eased slightly (+4.9% y/y) after weakening 2.1% in May. Professional & business equipment inventories were off 0.5% (+6.4% y/y) after falling 2.1% in May. Motor vehicle & parts inventories were off 1.2% (-4.7% y/y) for the second consecutive month. Machinery inventories also slipped m/m (-2.4% y/y), after falling 0.8%. Electrical equipment inventories jumped 2.6% (0.7% y/y) after increasing 0.6% in May. Hardware & plumbing equipment inventories rose 0.3% (8.4% y/y) following a 1.2% increase.

Inventories of nondurable goods also edged 0.1% higher during June (3.3% y/y) after rising 0.4% in May. Drug inventories increased 0.6% (5.8% y/y) after a 1.9% gain but apparel inventories declined 2.6% (-3.9% y/y) following a 0.4% fall. Grocery inventories increased 0.7% (10.4% y/y) after no change in May. Paper inventories were off 0.7% (+5.0% y/y) following a 0.2% rise while chemical inventories rose 1.9% (-1.0% y/y), the third straight month of sharp decline. Petroleum & petroleum product inventories rose 6.0% (-3.2% y/y) following a 2.9% increase.

Wholesale sales increased 0.3% (5.5% y/y) in June after falling 0.4% in May. A 0.2% increase had been expected in the Action Economics Forecast Survey. Sales of durable goods rose 0.5% (7.6% y/y) in June after rising 0.2% in May. Auto sales fell 0.7% (+4.3% y/y) after a 3.5% rise. Sales of electrical equipment improved 0.2% (15.3% y/y) following a 1.1% rise. Metals & minerals sales gained 0.6% (4.3% y/y) following a 1.2% gain. Furniture sales declined 2.2% (-3.0% y/y) after falling 2.3%. Professional equipment sales improved 0.3% (7.6% y/y) following a 0.3% decline. Machinery sales rose 0.8% (6.5% y/y) after declining 0.9% in May.

Sales of nondurable goods edged 0.1% higher (3.5% y/y) during June after falling 1.0% in May. Paper sales slumped 1.4% (+0.3% y/y) after falling 1.0% in May. Drug sales rose 0.8% (11.2% y/y) after falling 0.3% in May. Petroleum sales increased 0.9% (-7.4% y/y) after declining 3.0%. Sales of apparel rose 0.9% (9.3% y/y) after rising 1.9%. Grocery store sales decreased 	0.7% (+5.1% y/y) after rising 0.7% in May.

The June inventory-to-sales ratio in the wholesale sector stood at 1.3 for the fifth straight month. The durable goods I/S ratio eased to 1.66, down from the 1.81 high in March of last year. The ratio ranged from 2.84 for machinery to 0.98 for electrical equipment. The nondurable goods I/S ratio held at 0.95. The I/S ratio for apparel was 2.03 in June while for petroleum it was 0.35.

The wholesale trade figures are available in Haver's **USECON** database. The expectations figure for inventories is contained in the **MMSAMER** database. Expectations for sales are from the **AS1REPNA** database.

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- Slight inventory gain masks divergent industry patterns.
- Sales increase is first since March.
- I/S ratio steadies at three-year low.

U.S. Wholesale Inventories Edge Higher in June

Sandy Batten

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Nonfarm business labor productivity (output per hour) rebounded in Q2, increasing 2.4% q/q (SAAR) after having fallen 1.8% in Q1 (revised down from -1.5%). A 2.0% quarterly increase in Q2 was expected by the Action Economics Forecast Survey. Compared to a year ago, productivity growth edged up to 1.3% in Q2 from 1.2% in Q1.

Real value added (output) advanced 3.7% q/q in Q2 after declining 0.6% in Q1. Hours worked increased 1.3% q/q, up only marginally from a 1.2% gain in Q1. Compensation growth slowed to 4.0% q/q in Q2 from 5.0% in Q1 and 5.5% in last year’s Q4. As a result, unit labor costs advanced only 1.6% q/q in Q2, down markedly from a 6.9% quarterly gain in Q1. However, on a y/y basis, unit labor costs increased 2.6% y/y in Q2 versus 2.0% in Q1. Annual unit labor costs have been on an uptrend since the middle of last year.

Factory sector productivity slowed to 2.1% q/q (SAAR) in Q2 from a downwardly revised 3.3% in Q1 (previously 4.4%). Compared with a year ago, manufacturing productivity increased 1.5% in Q2, its fastest annual advance since Q2 2021. Manufacturing compensation growth slowed to 3.8% q/q in Q2 from 6.3% in Q1. Accordingly, unit labor cost growth slowed to 1.7% q/q in Q1, its slowest pace in four quarters, from 2.9% in Q1.

The productivity and labor cost data are available in Haver’s **USECON** database. The Action Economics expectations figures are in the **AS1REPNA** database.

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- Nonfarm business productivity increased 2.4% q/q annualized in Q2, more than reversing the 1.8% quarterly decline in Q1.
- Compensation growth slowed to 4.0% from 5.0% in Q1.
- Consequently, unit labor cost growth slowed markedly to 1.6% from 6.9% in Q1.

U.S. Productivity Rebounded in Q2; Unit Labor Costs Slowed

Economy in Brief: November 2004

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U.S. Personal Income Gain Light