Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091104g.jpg" width="353">
Improvement in service sector activity continued to be evident in the latest purchasing report. Though the October Composite Index for the nonmanufacturing sector from the Institute for Supply Management (ISM) ticked slightly lower to 50.6, it still was nearly its highest level since May of last year. The latest figure roughly equaled Consensus expectations. A level of the ISM index above 50 indicates rising overall service sector activity. Since the series&#39; inception in 1997 there has been a 64% correlation between the level of the composite index in the nonmanufacturing sector and the Q/Q change in real GDP for the services and the construction sectors.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091104h.jpg" width="353">
ISM surveys more than 370 purchasing managers in more than 62 industries including law firms, hospitals, government and retailers. The nonmanufacturing survey dates back to July 1997. The figures are available in Haver&#39;s USECON database.
Amongst the components, there was broad-based improvement tempered by a lower employment reading. The business activity index for the service sector remained above the break-even level of 50 for the third month. The new orders series also remained at its highest in two years, up from November&#39;s low of 35.6. The speed of vendor deliveries fell further (higher index level) to its slowest since January. Only the employment index deteriorated, falling to its lowest level since May. Since the series&#39; inception in 1997 there has been an 80% correlation between the level of the ISM nonmanufacturing employment index and the m/m change in payroll employment in the service-producing plus the construction industries.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091104i.jpg" width="353">
Pricing power improved as the overall index moved back above 50. The pricing index ticked just slightly higher m/m to 53.0 but was up sharply from the December low of 36.1. Since its inception ten years ago, there has been a 73% correlation between the price index and the q/q change in the GDP services chain price index.
Beginning with the January 2008 Nonmanufacturing <cite>Report On Business</cite>&reg;, the composite index is calculated as an indicator of the overall economic condition for the non-manufacturing sector. It is a composite index based on the diffusion indices of four of the indicators (business activity, new orders, employment and supplier deliveries) with equal weights. The latest report from the ISM can be found <a href="http://www.ism.ws/ISMReport/NonMfgROB.cfm">here.</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF03/@EF03.HTM" style="color:#000000">ISM Nonmanufacturing Survey</a></th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Oct. &#39;08</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>50.6</td>
<td>50.9</td>
<td>48.4</td>
<td>44.6</td>
<td>47.4</td>
<td>53.5</td>
<td>55.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Business Activity</td>
<td>55.2</td>
<td>55.1</td>
<td>51.3</td>
<td>44.5</td>
<td>47.4</td>
<td>56.0</td>
<td>58.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; New Orders</td>
<td>55.6</td>
<td>54.2</td>
<td>49.9</td>
<td>44.3</td>
<td>47.0</td>
<td>54.8</td>
<td>57.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Employment</td>
<td>41.1</td>
<td>44.3</td>
<td>43.5</td>
<td>41.7</td>
<td>43.8</td>
<td>52.0</td>
<td>53.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Supplier Deliveries</td>
<td>50.5</td>
<td>50.0</td>
<td>49.0</td>
<td>48.0</td>
<td>51.1</td>
<td>51.1</td>
<td>53.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Index</td>
<td>53.0</td>
<td>48.8</td>
<td>63.1</td>
<td>53.3</td>
<td>66.0</td>
<td>63.8</td>
<td>65.3</td>
</tr>
</tbody>
</table>
</body>
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Improvement in service sector activity continued to be evident in the latest purchasing report. Though the October Composite Index for the nonmanufacturing sector from the Institute for Supply Management (ISM) ticked slightly lower to [...]

U.S. ISM Nonmanufacturing Index Ticks Lower But Stays Near May '08 High

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091104f.jpg" align="left" border="0" height="265" width="353">
The EMU services PMI rose for the fourth month in a row. The
services index is above the 50 mark for the second month running. The
services PMI is on a tear as it is surging up at least as fast as it
had dropped in the recession. So far so good. Still it has not restored
the pre-recession level of the services index. It remains pure
speculation as to how fast or soon it will recoup its pre-recession
level.
The Markit PMI readings are higher and stronger in their
ranges than are their counterpart indices from the European Commission.
The EMU index from Markit for the service sector is in the 59th
percentile of its range since May of 2000. Over the same period the EU
Commission services index is in its 31st percentile about half as
strong in relative terms.
The same sort of shortfalls exist across countries
In the Markit framework all the largest countries&#8217; services
sectors score above the 50 (neutral) mark except Spain whose index
still lags at 47.7. But in percentile of range terms it is Germany that
is lagging and stands below the mid-point mark. Germany is doing well
in absolute terms but it is not doing well relative to its past
performance.
On balance the rise in the services sector is sharp and still
seems to carry good upward momentum. This month among the larger
countries only Germany backtracked. In the EU the UK&#8217;s reading is up to
56.9 and stands in the 82nd percentile (top 18%) of its range. The
recovery across Europe is taking hold in the key services sector where
most of the jobs are. It&#8217;s good news. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="" col="">Markit
Services Indices for EU/EMU</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Oct-09</td>
<td>Sep-09</td>
<td>Aug-09</td>
<td>3Mo</td>
<td>6Mo</td>
<td>12Mo</td>
<td>Percentile</td>
</tr>
<tr class="odd">
<td class="firstcol">Euro-Area</td>
<td>52.58</td>
<td>50.86</td>
<td>49.92</td>
<td>51.12</td>
<td>48.09</td>
<td>44.93</td>
<td>59.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>50.73</td>
<td>52.06</td>
<td>53.82</td>
<td>52.20</td>
<td>49.18</td>
<td>46.61</td>
<td>47.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>57.71</td>
<td>53.16</td>
<td>49.30</td>
<td>53.39</td>
<td>50.20</td>
<td>46.74</td>
<td>69.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>52.20</td>
<td>48.53</td>
<td>46.42</td>
<td>49.05</td>
<td>46.18</td>
<td>43.08</td>
<td>57.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>47.74</td>
<td>46.39</td>
<td>45.34</td>
<td>46.49</td>
<td>43.44</td>
<td>38.41</td>
<td>59.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Ireland</td>
<td>47.37</td>
<td>45.46</td>
<td>46.71</td>
<td>46.51</td>
<td>43.95</td>
<td>38.67</td>
<td>42.4%</td>
</tr>
<tr class="even">
<td colspan="8" class="firstcol">EU only</td>
</tr>
<tr class="odd">
<td class="firstcol">UK (CIPs)</td>
<td>56.90</td>
<td>55.30</td>
<td>54.07</td>
<td>55.42</td>
<td>53.81</td>
<td>48.58</td>
<td>82.1%</td>
</tr>
<tr>
<td colspan="8" class="firstcol">EU Commission Indices for
EU and EMU</td>
</tr>
<tr class="even">
<td class="firstcol">EU Index</td>
<td>Oct-09</td>
<td>Sep-09</td>
<td>Aug-09</td>
<td>3Mo</td>
<td>6Mo</td>
<td>12Mo</td>
<td>Percentile</td>
</tr>
<tr class="odd">
<td class="firstcol">EU Services</td>
<td>-11</td>
<td>-11</td>
<td>-11</td>
<td>-19.67</td>
<td>-22.50</td>
<td>-26.75</td>
<td>43.2%</td>
</tr>
<tr class="even">
<td class="firstcol">EMU</td>
<td>Oct-09</td>
<td>Sep-09</td>
<td>Aug-09</td>
<td>3Mo</td>
<td>6Mo</td>
<td>12Mo</td>
<td>Percentile</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>-7</td>
<td>-9</td>
<td>-11</td>
<td>-9.00</td>
<td>-14.67</td>
<td>-19.67</td>
<td>31.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Cons Confidence</td>
<td>-18</td>
<td>-19</td>
<td>-22</td>
<td>-19.67</td>
<td>-22.50</td>
<td>-22.03</td>
<td>43.2%</td>
</tr>
<tr>
<td colspan="8" class="firstcol">Consumer confidence by
country</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany-Ccon</td>
<td>-16</td>
<td>-19</td>
<td>-23</td>
<td>-19.33</td>
<td>-24.17</td>
<td>-25.67</td>
<td>39.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">France-Ccon</td>
<td>-21</td>
<td>-24</td>
<td>-32</td>
<td>-25.67</td>
<td>-27.50</td>
<td>-31.00</td>
<td>40.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Ital-Ccon</td>
<td>-18</td>
<td>-16</td>
<td>-15</td>
<td>-16.33</td>
<td>-18.33</td>
<td>-23.17</td>
<td>40.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">UK-Ccon</td>
<td>-8</td>
<td>-10</td>
<td>-16</td>
<td>-11.33</td>
<td>-14.83</td>
<td>-21.67</td>
<td>71.1%</td>
</tr>
<tr class="odd">
<td colspan="8" class="firstcol">percentile is over range since May
2000</td>
</tr>
</tbody>
</table>
</body></html>

The EMU services PMI rose for the fourth month in a row. The services index is above the 50 mark for the second month running. The services PMI is on a tear as it is surging up at least as fast as it had dropped in the recession. So [...]

Service Sector In Europe Continues To Dig Out

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091104c.jpg" align="right" border="0" height="265" width="353">
Payroll
employment fell again last month, but the rate of decline recently has
eased. The latest report from the payroll processor ADP, in their
National Employment Report, indicated that private nonfarm payrolls
fell 203,000 during October after a revised 227,000 September decline
which was shallower than reported initially. The latest reading was the
twenty-first consecutive monthly decline. The monthly change, however,
was the smallest since July of last year and two-thirds the size of the
worst reading last March. The three-month annualized rate of decline in
payrolls also eased to 2.5% from its March record of 7.1%.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091104d.jpg" align="right" border="0" height="265" width="353">
ADP compiled the estimate from its
database of individual companies' payroll information. Macroeconomic
Advisers, LLC, the St. Louis economic consulting firm, developed the
methodology for transforming the raw data into an economic
indicator.The
U.S. Bureau of Labor Statistics will report October payroll employment
this Friday. For comparison, the
September decline of 227,000 in ADP's measure of private nonfarm
payrolls was accompanied by a loss of 210,000 jobs in the BLS measure
of private sector payrolls.
According to ADP and Macro-Advisers, the correlation between the
monthly percentage change in the ADP estimate and that in the BLS data
is 0.90.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091104e.jpg" align="right" border="0" height="265" width="353">
 ADP reported
that the decline in small-sized payrolls moderated to 75,000 (-4.3%).
That matched the 75,000 (-5.5% y/y) decline in medium-sized payrolls.
Large payrolls fell by 53,000 (-5.6% y/y). The steady decline in
service-producing industry employment continued. The October drop of
86,000 (-3.1% y/y), was the twentieth consecutive monthly decline but
in percentage terms the three-month rate of change moderated to -1.3%,
less than two-thirds the worst from December through March. The decline
in medium-sized service payrolls moderated to 30,000 (-3.4% y/y) and
small-sized payrolls declined 34,000 (-2.8% y/y). Large service
producing payrolls dropped by 22,000 and the y/y decline held steady at
3.4%.In the goods
producing sector employment fell 117,000 in October (-13.2% y/y). Here,
the three-month rate of decline eased again but only to -8.4% versus
-17.3% at its worst. Small-sized payrolls fell 41,000 (-12.9% y/y)
followed by a 45,000 (-13.3% y/y) drop in medium-sized payrolls. Large
payrolls fell 31,000 (-13.4% y/y). In the manufacturing sector alone,
payrolls fell 65,000 (-12.5% y/y).The
ADP National Employment Report data is maintained in Haver's USECON
database; historical figures date back to December 2000. The figures in
this report cover only private sector jobs and exclude employment in
the public sector, which rose an average 11,083 during the last twelve
months. The full ADP
National Employment Report can be found <a href="http://www.adpemploymentreport.com/pdf/FINAL_Report_October_09.pdf">here</a>p
pand the ADP methodology is
explained <a href="http://www.adpemploymentreport.com/PDF/ADPNERMethodology.pdf" title="blocked::http://www.adpemploymentreport.com/PDF/ADPNERMethodology.pdf">here</a>.
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB25/@EB25.HTM">LAXEPA@USECON</a></th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Nonfarm Private Payroll
Employment (m/m Chg., 000s)</td>
<td>-203</td>
<td>-227</td>
<td>-5.0%</td>
<td>-0.5%</td>
<td>1.2%</td>
<td>2.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Small
Payroll (1-49)</td>
<td>-75</td>
<td>-90</td>
<td>-4.3</td>
<td>-0.0</td>
<td>1.6</td>
<td>2.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Medium
Payroll (50-499)</td>
<td>-75</td>
<td>-81</td>
<td>-5.5</td>
<td>-0.5</td>
<td>1.2</td>
<td>1.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Large
Payroll (&gt;500)</td>
<td>-53</td>
<td>-56</td>
<td>-5.6</td>
<td>-1.6</td>
<td>-0.1</td>
<td>0.4</td>
</tr>
</tbody>
</table>
</body></html>

Payroll employment fell again last month, but the rate of decline recently has eased. The latest report from the payroll processor ADP, in their National Employment Report, indicated that private nonfarm payrolls fell 203,000 during [...]

ADP Report: Payroll Employment Decline Continues But The Pace Moderates

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091104a.jpg" width="353">
U.S. unit sales of light vehicles during October recovered from the &quot;payback&quot; month of September following the summer&#39;s &quot;cash-for-clunkers&quot; sales program. Sales rose 13.5% m/m to 10.46M units according to the Autodata Corporation. (Seasonal adjustment of the figures is provided by the U.S. Bureau of Economic Analysis). October sales were stronger than the expected 9.8M sales rate.
Sales of domestically made vehicles rose 17.2% to 7.75M units after their one-third m/m September drop. Despite the gain, sales remained 0.7% lower than October 2007. Sales of fuel efficient cars rose 11.9% following their more than one-third September decline. Light truck sales reversed most of the September drop and rose 22.2% m/m. Total sales of domestic vehicles during this year&#39;s first 10 months were down 27.5% from last year&#39;s first ten months.
Imported light vehicles rebounded after the end of the sales program, but the increase was less than for domestic makes. Overall sales rose just 4.1% to 2.71M after September&#39;s 36.5% m/m drop. Sales of imported autos rose 5.2% after the one-third September drop while the gain in imported light truck sales amounted to just 1.6% after the more than one-third September drop. Year-to-date, sales of imported vehicles remained 20.0% below last year&#39;s first ten month&#39;s average.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091104b.jpg" width="353">
Overall, import&#39;s share of the U.S. light vehicle market fell to 25.9% last month from 28.2% in September. It reached 26.5% during all of last year. (Imported vehicles are those produced outside the United States.) Imports&#39; share of the U.S. car market totaled 33.9%, versus 34.3% last year while the share of the light truck market was 16.9%, down from 18.3% last year.
The U.S. vehicle sales figures can be found in Haver&#39;s USECON database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED09/@ED0901/@ED0901.HTM&quot;" style="color: #000000">Light Vehicle Sales (SAAR, Mil. Units)</a></th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Oct. Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>10.46</td>
<td>9.22</td>
<td>14.09</td>
<td>-3.4%</td>
<td>13.17</td>
<td>16.16</td>
<td>16.54</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>5.50</td>
<td>5.02</td>
<td>8.05</td>
<td>-3.7</td>
<td>6.71</td>
<td>7.58</td>
<td>7.77</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Domestic</td>
<td>3.64</td>
<td>3.25</td>
<td>5.26</td>
<td>-1.1</td>
<td>4.42</td>
<td>5.07</td>
<td>5.31</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Imported</td>
<td>1.87</td>
<td>1.77</td>
<td>2.78</td>
<td>-8.4</td>
<td>2.29</td>
<td>2.52</td>
<td>2.45</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Light Trucks</td>
<td>4.96</td>
<td>4.20</td>
<td>6.05</td>
<td>-3.0</td>
<td>6.47</td>
<td>8.60</td>
<td>8.78</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Domestic</td>
<td>4.12</td>
<td>3.37</td>
<td>4.75</td>
<td>-0.4</td>
<td>5.29</td>
<td>7.10</td>
<td>7.42</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Imported</td>
<td>0.84</td>
<td>0.83</td>
<td>1.31</td>
<td>-13.9</td>
<td>1.18</td>
<td>1.47</td>
<td>1.37</td>
</tr>
</tbody>
</table>


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U.S. unit sales of light vehicles during October recovered from the "payback" month of September following the summer's "cash-for-clunkers" sales program. Sales rose 13.5% m/m to 10.46M units according to the Autodata Corporation. [...]

U.S. Vehicle Sales Recover During October

U.S. Vehicle Sales Recover DuringOctober

Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091103g.jpg" align="left" border="0" height="265" width="353">
Brazilian industrial production increased 0.75% to 119.2
(2002=100) in September from 118.3 in August, a little short of
expectations, but still on the upward trend that began in January. The
three major marketing groups--capital goods, intermediate goods and
consumer goods--have all recovered from their falls in December as can
be seen in the first chart. The decline in capital goods was especially
severe and the recovery equally sharp.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091103h.jpg" align="right" border="0" height="265" width="353">
Industrial production is a good proxy for Brazilian GDP.
Brazil reports real GDP on an index basis with 1995=100. We rebased the
Industrial production index to 1995=100 and aggregated the monthly
figures to quarterly. The second chart compares this index with the
index of real GDP. The correlation between the two series is strong at
.97. In the third quarter, industrial production increased 4.1%. A 3.9%
increase in industrial production was associated with a 1.9% increase
in real GDP. If the relationship between industrial production and real
GDP holds, Brazil's real GDP should show another roughly 2% rise in GDP
in the third quarter.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">BRAZIL</th>
<th scope="col">Sep 09</th>
<th scope="col">Aug&nbsp;09</th>
<th scope="col">Sep 08</th>
<th scope="col">M/M %&nbsp;</th>
<th scope="col">Y/Y %</th>
<th scope="col">2008&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Industrial Production&nbsp;
(2002=100) as reported</td>
<td>109.2</td>
<td>118.3</td>
<td>129.7</td>
<td>0.75</td>
<td>-8.1</td>
<td>125.3</td>
<td>121.8</td>
<td>115.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Industrial Production (1995=100)</td>
<td>136.2</td>
<td>135.2</td>
<td>148.3</td>
<td>0.75</td>
<td>-8.1</td>
<td>143.2</td>
<td>139.2</td>
<td>131.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>Q3 09</td>
<td>Q2 09</td>
<td>Q1 09</td>
<td>Q4 08</td>
<td>Q3 08</td>
<td>Q2 08</td>
<td>Q1 08</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Real GDP (1995=100)</td>
<td>&nbsp;</td>
<td>145.3</td>
<td>142.7</td>
<td>146.0</td>
<td>149.0</td>
<td>147.1</td>
<td>144.9</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Industrial Production (1995=100)</td>
<td>135.1</td>
<td>129.8</td>
<td>124.9</td>
<td>133.8</td>
<td>148.2</td>
<td>146.3</td>
<td>144.7</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
</body></html>

Brazilian industrial production increased 0.75% to 119.2 (2002=100) in September from 118.3 in August, a little short of expectations, but still on the upward trend that began in January. The three major marketing groups--capital [...]

Brazil's Industrial Production Points To Good Third Quarter Growth In GDP

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091103e.jpg" width="353">
Factory inventories continued lower during September as the stage continued to be set for a firm rebound in manufacturing activity. Of course that rebound is dependant on whether demand improves, and there are tentative indications that it is. Factory inventories fell 1.0% during September, about as they did during the prior four months. Despite the strength of these declines, the 4.6% decline during the period is a clear moderation from the 6.5% rate during the five months through April.
The moderation in inventory decumulation rates continues spotty amongst various industries. Inventories of electrical equipment &amp; appliances have fallen at a reduced 6.6% rate during the period but decumulation of machinery inventories continued firm at a 7.3% rate. Furniture inventories fell at a reduced 8.8% rate. The rate of decumulation of primary metals inventories also slowed as did cuts of motor vehicle &amp; parts inventories. Inventory reductions of computers &amp; electronic products continued firm but it may have bottomed.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091103f.jpg" width="353">
Factory shipments have started to rise moderately. On a three-month basis they&#39;re up at a 3.5% rate after the 40% plus rates of decline last Winter. Shipments of primary metals have firmed to a 52.5% growth rate over the last three months and computers &amp; electronics shipments rose at a 4.7% rate. Shipments of transportation equipment rose at a 25.1% rate led by a surge in shipments of nondefense aircraft &amp; parts. Shipments of basic chemicals also turned up as did shipments from textile mills. The shipments improvement has caused unfilled orders to fall at a much-reduced 3.9% rate through September.
Overall, the reduction of inventories in the factory sector has succeeded in lowering the inventory-to-sales ratio. The decline to 1.36 was to its lowest level since October of last year and down from the recent peak of 1.46.
Finally, new orders have improved. The 0.9% increase during September raised orders at a 6.0% rate during the last three months. It reflected improvement in orders for transportation equipment, machinery, primary metals and electrical equipment.
The Manufacturers&#39; Shipments, Inventories and Orders (MSIO) data is available in Haver&#39;s USECON database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED01016/@ED01016.HTM" style="color:#FFFFFF">Factory Survey</a> (NAICS, %)</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Inventories</td>
<td>-1.0</td>
<td>-0.9</td>
<td>-11.8</td>
<td>2.1</td>
<td>3.7</td>
<td>8.2&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Excluding Transportation</td>
<td>-0.7</td>
<td>-0.4</td>
<td>-14.1</td>
<td>-0.6</td>
<td>2.7</td>
<td>7.9</td>
</tr>
<tr class="odd">
<td class="firstcol">New Orders</td>
<td>0.9</td>
<td>-0.8</td>
<td>-17.1</td>
<td>0.1</td>
<td>1.9</td>
<td>6.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Excluding Transportation</td>
<td>0.8</td>
<td>0.3</td>
<td>-15.7</td>
<td>3.1</td>
<td>1.2</td>
<td>7.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>0.8</td>
<td>-0.2</td>
<td>-15.9</td>
<td>1.7</td>
<td>1.2</td>
<td>5.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Excluding Transportation</td>
<td>0.1</td>
<td>-0.1</td>
<td>-16.5</td>
<td>3.7</td>
<td>1.5</td>
<td>6.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Unfilled Orders</td>
<td>-0.4</td>
<td>-0.4</td>
<td>-11.5</td>
<td>3.5</td>
<td>17.1</td>
<td>15.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding Transportation</td>
<td>0.5</td>
<td>-0.1</td>
<td>-14.2</td>
<td>-1.0</td>
<td>8.2</td>
<td>16.0</td>
</tr>
</tbody>
</table>
</body>
</html>

Factory inventories continued lower during September as the stage continued to be set for a firm rebound in manufacturing activity. Of course that rebound is dependant on whether demand improves, and there are tentative indications [...]

U.S. Factory Inventory Decumulation Rate Still Strong

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091103d.jpg" align="left" border="0" height="265" width="353">
The auto sector is giving Europe a boost as incentive programs
are still helping to stimulate sales. Only Italy and Spain have
reported registrations for October but despite poor growth in both
regions auto sales are growing in strongly. Spain&#8217;s sales are up by
1.7% m/m in October and up at a 99% annual rate over three months even
as unemployment has hit a 10Year high there. Italy backed off in
October after a strong September.
Troubles in the financial sector have banks as less than
wiling lenders. Tough economic times have put consumers on the
sidelines. But government programs to stimulate demand with outright
subsidies linked to the scrappage of old poor-mileage vehicles has been
a way to stimulate demand and to vest theses programs with some sense
of a public purpose.
EMU Italy and Spain all saw sales crater at about the same
time. Despite different auto incentive programs in different countries
we see that Spain and Italy, two of the more challenged EMU economies,
with auto sectors that are very much in sync with the rest of Europe.
Evidence is that the recession in EMU is ending.
The EU Commission today issued a new outlook for the Zone and
confirmed that it sees recovery taking hold. It sees a contraction of
4.1% for the EU area this year followed by growth of 0.7% in 2010 and
of 1.6% in 2011 and roughly similar growth metrics for the Zone. This
outlook is a hike in its forecast from its previous stance than growth
in 2010 would contract by 0.1% in EMU.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="10" scope="col">E zone
Car Registrations</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Mo/Mo %</td>
<td colspan="2">3Mo Trend From</td>
<td colspan="2">6Mo Trend From</td>
<td colspan="2">12Mo Trend From</td>
</tr>
<tr>
<td class="firstcol">All Seas Adj</td>
<td>Oct 09</td>
<td>Sep 09</td>
<td>Aug 09</td>
<td>Oct 09</td>
<td>Sep 09</td>
<td>Oct 09</td>
<td>Sep 09</td>
<td>Oct 09</td>
<td>Sep 09</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>-1.6%</td>
<td>19.3%</td>
<td>-13.6%</td>
<td>5.8%</td>
<td>13.4%</td>
<td>16.1%</td>
<td>44.9%</td>
<td>14.5%</td>
<td>6.2%</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>1.7%</td>
<td>28.8%</td>
<td>-9.3%</td>
<td>99.0%</td>
<td>158.6%</td>
<td>117.0%</td>
<td>181.5%</td>
<td>25.8%</td>
<td>17.7%</td>
</tr>
<tr>
<td class="firstcol">base Month of Calc</td>
<td>Sep-09</td>
<td>Aug-09</td>
<td>Jul-09</td>
<td>Jul-09</td>
<td>Jun-09</td>
<td>Apr-09</td>
<td>Mar-09</td>
<td>Oct-08</td>
<td>Sep-08</td>
</tr>
</tbody>
</table>
</body></html>

The auto sector is giving Europe a boost as incentive programs are still helping to stimulate sales. Only Italy and Spain have reported registrations for October but despite poor growth in both regions auto sales are growing in [...]

Selected Car Registrations In Europe

Stable job openings and hiring rates point to cautious hiring

Global freight costs are on the rise while supply chain pressures are contained

Accelerating positive economic surprises in the G10 are boosting the global economy

Considerably more monetary ease expected from US and UK as Japan tightens

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

US productivity growth has been significantly faster than in other major economies

Consumers' short-term US inflation expectations still elevated while longer-term expectations of financial markets are steady

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

Job openings less than the number unemployed in July for first time since 2021

Reaccelerating goods price inflation along with sticky services inflation clouds the outlook

Falling oil prices aren't pulling down inflation expectations, pointing to a boost from increased tariffs

Equity market exuberance outpacing macroeconomic data

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

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Michael J. Moran

260109A.jpg

260109B.jpg

Nonfarm payrolls rose 50,000 in December, continuing a pattern of modest increases that began in early 2025 and intensified last spring. The December results were constrained by an outright decline in the goods-producing sector, with both construction companies and manufacturers shedding workers. The private service sector was in the plus column, but the gain of 58,000 was not especially impressive. The retail trade sector was notably soft (-25,000), and a drop of 9,000 among firms in the business-service area was disappointing.

Revisions to results in October and November were more notable than the new figures for December, as downward adjustments of 76,000 more than offset the gain in December and left a net decline in the fourth quarter. Several areas contributed to the revisions (retail trade, construction, health care, transportation & warehousing, business services).

Not only were the recent job numbers soft, but the average workweek among those employed eased 0.1 hour to 34.2 hours. The reading was still within the range of observations from the past two years, but it moved to the bottom of the range. A dip of 0.1 hour might seem trivial, but when applied to 160 million workers, it represents a constraint on production. This decline added to the soft tone of the report.

260109C.jpg

Although the payroll numbers were soft, the unemployment rate dipped 0.1 percentage point to 4.4%. The drop reflected a jump of 232,000 in employment as measured by the survey of households. This employment measure is more volatile than the payroll figures from the survey of business establishments, and thus the gain might contain a healthy dose of random volatility. Still, it offered encouragement in that December marked the fifth consecutive gain, perhaps signaling that the bottom was not falling out of the labor market. 

Average hourly earnings also suggested that the labor market still had a pulse. December showed an increase of 0.3% in average hourly earnings, and results in the prior month were firmer than previously estimated (0.2% growth rather than 0.1%). The underlying trend is still cooling, but the year-over-year advance of 3.8% still represents a gain in real earnings.

The employment and earnings data are collected from surveys taken each month during the week containing the 12th day of the month. The labor market data are contained in Haver's **USECON** database. Detailed figures are in the **EMPL** and **LABOR** databases. The expectations figures are in the **AS1REPNA** database.

- Modest job growth in December, and downward revisions in October & November.
- The unemployment rate, though, inched lower.

A Soft Tone in the Labor Market

Winnie Tapasanun

260109F17.jpg

260109G17.jpg

Total housing starts fell 4.6% m/m in October to a seasonally adjusted annual rate of 1.246 million units—below expectations—following a 1.2% increase to 1.306 million in September and a 9.1% drop to 1.291 million in August (-8.5% m/m, 1.307 million previously), data from the U.S. Census Bureau showed. The Action Economics Forecast Survey had expected 1.321 million starts for October. The October figure marked the lowest level since May 2020 and represented the second m/m decline in three months after m/m increases in July and June. The year-on-year rate was at -7.8% in October, the steepest y/y drop since November 2024, following -3.8% in September and -1.2% in October 2024. Overall, starts remained 31.5% below the April 2022 peak of 1.820 million.

Single-family starts rebounded 5.4% (-7.8% y/y) to 874,000 in October, the highest level since July, after declines of 4.6% to 829,000 in September and 8.6% to 869,000 in August (890,000 previously). They reached a high of 1.218 million in November 2021 and a high of 1.273 in December 2020. Multi-family starts plunged 22.0% (-7.9% y/y) to 372,000, the lowest level since May, following a 13.0% September gain to 477,000 and a 10.0% August drop to 422,000 (417,000 previously). They reached a high of 629,000 units in November 2022 and a high of 616,000 units in April 2022.

By region, housing starts delivered a mixed performance. Starts in the West slumped 21.9% (-25.9% y/y) to 243,000 in October, the lowest level since July, after a 1.6% increase in September. Starts in the Northeast slid 0.6% (+41.3% y/y) to 154,000, the third m/m slide in four months, after a 58.2% September surge. To the upside, starts in the South rebounded 1.2% (-2.1% y/y) to 650,000 in October after a 3.6% decline in September and starts in the Midwest rose 0.5% (-20.7% y/y) to 199,000 after a 10.4% September decrease; for both regions, October represented the first m/m increase since July. Notably, the South continued to lead all regions with 650,000 starts, accounting for 52.2% of total U.S. housing starts; the region previously peaked at 1.044 million in April 2022.

Building permits fell 0.2% (-1.1% y/y) to 1.412 million in October, the sixth m/m fall in seven months, following a 6.4% rise to 1.415 million in September and a 2.3% decline to 1.330 million in August. They remained well below a high of 1.920 million in January 2022 and a high of 1.855 million in January 2021. Single-family permits fell 0.5% (-9.4% y/y) to 876,000, the second m/m fall in three months, after a 2.6% September increase to 880,000. They reached highs of 1.243 million in both January 2022 and January 2021. In contrast, multi-family permits rose 0.2% (16.3% y/y) to 536,000, the highest level since February 2024, after a 13.3% September gain to 535,000. They reached a peak of 817,000 units in February 2023 and a high of 787,000 units in June 2022. Regionally, permits fell m/m in the South (-3.3%; -3.9% y/y), the Midwest (-2.0%; -0.5% y/y), and the Northeast (-1.4%; +5.8% y/y), but increased m/m in the West (+9.1%; +2.1% y/y).

The housing starts and building permits figures can be found in Haver’s **USECON** database. The expectations figure is contained in the **AS1REPNA** database.

260109H17.jpg

260109I17.jpg

- Housing starts -4.6% (-7.8% y/y) to 1.246 mil. in Oct.; second m/m fall in three months.
- Single-family starts up to a three-month high; multi-family starts down to a five-month low.
- Housing starts m/m down the West and Northeast but up in the South and Midwest.
- Building permits fall for the sixth time in seven months, led by a drop in single-family permits.

U.S. Housing Starts Decline in October; Lowest Level Since May ’20

260109E.jpg

German industrial production advanced by 0.8% month-to-month in November performing better than had been expected. Consumer goods output fell by 0.3% month-to-month, capital goods output soared with a 4.9% gain, while intermediate goods output fell back by 0.8%.  

On the whole, manufacturing output had been expected to be weak. But looking at manufacturing alone, rather than total industrial production, the gain was even stronger at 2.1% month-to-month. Real manufacturing orders in November rose by 5.6%, real sales in manufacturing rose by 2.7%. This is solid performance.

**Survey data have been weak and listless**
However, apart from anecdotal evidence, as monthly data unfold, the kinds of numbers that we have to look at first are various economic surveys that come from diffusion data. The ZEW’s current index was slightly stronger month-to-month at a still very weak -78.7 (net) reading compared to -80 in October although both of those were weaker than the ZEW net September reading of -76.4. IFO manufacturing weakened month-to-month in November at 87.1 compared to 88.1 in October and it was slightly weaker than its September value as well. IFO manufacturing expectations slipped to 94.1 in November from 96.9 in October although expectations were slightly higher than their level in September. The EU Commission index weakened in November to -18.9 from -18.1 in October although there was an improvement from -20.1 in September.

These comparisons show us that the survey data which we had in hand before getting the industrial production reading from Germany had given us a lot of weak readings and a lot of very weak momentum.

**Compare survey data to IP data using ranking technique**
We can compare industrial production data to survey data using two different columns in this table. The first is the queue standing column where we see the industrial production data with rankings mostly in their 50th percentile: intermediate goods have a ranking of 37.7% with construction at 33.4%; they are the weaker exceptions. We rank IP data by sector according to their annual growth rates compared to past growth rates.  However, by comparison the survey data (that we rank on levels) range between 12.1% and 29.8%; all of those are very weak readings. No wonder a focus on survey data leads to a weak upcoming assessment of production data. We can also look at a slightly more up-to-date, but shorter ranking, from January 2021. There we see that the industrial production data average rankings from the mid-60th percentile up to the 81.4 percentile for total industrial production. Surveys generally have rankings in the 20th and 30th percentile with the exception of IFO manufacturing expectations which reaches 67.8%, which is a solid reading.

260109.jpg

**Survey data signals should be downgraded?**
These comparisons show us that while it's hard to compare industrial output directly to the diffusion readings if we take those two metrics over the same timeline and compare the level of the diffusion index to the growth rate of the manufacturing index we get the capability to compare the two on more even footing. When we do that, we see that manufacturing data are doing better than the survey data very broadly speaking. So, while there's some surprise on the strength of manufacturing data, maybe we should place a greater emphasis on it because those data come from a real accounting process rather than from a survey process that is much less closely linked to magnitudes. And, essentially, we are really much more interested in magnitudes than just if something is higher and lower.

**Other Europe doing ‘well’, too**
Not so incidentally the industrial production readings for France, Spain, Portugal, and Norway, all of whom are fairly early reporters of industrial production data, rank well on the queue standing column as well as in the shorter rank standing column from January 2021. In fact, for these countries the difference in ranking between the two periods is not markedly different, certainly not as markedly different as it is for Germany. On the whole, it may be that Europe has been doing better than we thought because we've been spending too much time looking at the more up-to-date survey data on a PMI basis, rather than waiting for the more traditional and lagging industrial production reports that are accounting-based data and more thorough.

Germany

German Industrial Production Perks Up-Surprise!

Andrew Cates

**Global growth**
This first chart below highlights a still-fragmented global growth picture, with momentum and current activity levels varying markedly across economies. India stands out at the top-left of the chart, combining a very strong composite PMI reading with some recent cooling in momentum, suggesting activity remains robust even as growth rates moderate. Brazil and Spain sit at another end of the spectrum, pairing solid expansionary PMI levels with strong positive three-month momentum, signalling accelerating activity into year-end. By contrast, much of continental Europe — including France, Germany and Italy — remains clustered close to the 50 threshold, with modest (or no) improvements in momentum and only tentative signs of underlying expansion, underscoring the euro area’s sluggish growth backdrop. The US occupies a middle ground by remaining in expansionary territory, but recent momentum has softened, consistent with a gradual cooling rather than a downturn. Overall, the chart reinforces the message that while global growth remains positive, it is neither synchronised nor particularly strong.


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**Supply chain pressures and inflation surprises**
The NY Fed’s Global Supply Chain Pressure Index has remained subdued in recent months, reinforcing the view that supply-side frictions are no longer a material source of inflation risk. After the extreme dislocations of 2021–22, the index has settled close to, and at times below, its long-run average, consistent with largely normalised delivery times, inventories and transportation costs. The latest reading for December 2025, however, does point to some marginal tightening in supply-chain conditions, though from very low levels and still well within historical norms. Still, this modest firming has so far coincided with a broadly benign profile for inflation surprises across the G10. While geopolitical risks and trade fragmentation remain medium-term considerations, the current signal from global supply chains continues to point to limited immediate upside pressure on inflation.

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**Policy rate expectations**
In the meantime, policy-rate expectations across the major economies continue to diverge, reflecting differences in inflation dynamics and where central banks sit in their respective cycles. The latest Blue Chip survey of Financial Forecasts points to further easing over the next 12 months in the UK and the US. By contrast, expectations for the euro area and Canada are more subdued, in part because both central banks are already at a more advanced stage of their easing campaigns, leaving less scope for additional near-term adjustment. Australia stands apart, with lingering inflation pressures tempering expectations for rate cuts despite softer growth momentum. Japan, meanwhile, remains at a very different point in the cycle: having only recently begun a less accommodative campaign from ultra-loose policy, it is the sole major economy where forecasters still anticipate modest further policy tightening rather than easing.

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**Venezuela, the oil market and implications**
Venezuela’s outsized share of _world crude oil proved reserves_ — nearly one-fifth of the global total — looms large in market narratives even as its _actual production_ has languished well below historic highs. At the start of 2026, dramatic political and strategic events — including the capture of President Nicolás Maduro by U.S. forces and a tightening U.S. oil blockade that has halted Venezuelan exports — have injected fresh uncertainty into oil markets. While immediate impacts on global prices have been modest amid ample global supplies, geopolitical risk premiums have briefly lifted crude benchmarks, reflecting market sensitivity to potential supply disruptions and future policy shifts. In the short run, sustained low exports and production cuts due to storage constraints could tighten crude balances marginally, but most analysts see limited influence on overall market fundamentals this year. Over the longer term, however, any successful revival of Venezuelan output — contingent on massive investment, infrastructure rehabilitation and changes to sanctions policy — could eventually expand heavy crude availability and weigh on prices, with broader implications for OPEC+ dynamics and energy security in the Western Hemisphere.

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**China’s excess capacity and traded goods price disinflation** 
China’s export sector looks set to remain a key swing factor for the global economy in the year ahead, not least because of persistent surplus manufacturing capacity and weak domestic demand. As the chart illustrates, periods of falling relative export prices have tended to coincide with rising export volumes, highlighting China’s ability — and willingness — to clear excess capacity through external markets. With producer prices still under pressure and policy support focused more on supply than demand, the risk is that excess capacity is once again exported via more aggressive price competition, rather than absorbed domestically. If sustained, this dynamic would reinforce global disinflation forces, intensify competitive pressures on manufacturers elsewhere, and heighten trade tensions, particularly in sectors already sensitive to Chinese overcapacity such as autos, machinery and green technologies. In that sense, China’s export pricing behaviour may prove as important for the global inflation and trade outlook in 2026 as any shift in domestic growth momentum.

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**Public sector indebtedness**
This next chart, drawn up by the IMF, underlines a defining feature of the post-pandemic macro landscape: public debt is not only higher than before Covid, but is set to keep rising — and at a faster pace — with the largest economies doing much of the heavy lifting. The clustering of the biggest bubbles in the upper-right quadrant shows that countries accounting for roughly two-thirds of global GDP have already experienced sizeable increases in debt-to-GDP ratios since 2019 and are projected to see further rises through the second half of the decade. This combination of elevated starting points and ongoing fiscal expansion reflects the persistence of structural pressures — higher interest costs, ageing populations, defence spending and climate-related investment — rather than temporary crisis measures. For the global economy, the implication is a world in which fiscal policy remains active but increasingly constrained, raising difficult questions about debt sustainability, the tolerance for higher real interest rates, and the scope for counter-cyclical fiscal support when the next downturn arrives.

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Over the past few weeks, global financial markets have taken comfort from cooling inflation, resilient earnings and continued upside surprises in the dataflow, with equity markets extending gains as confidence in a soft-landing outcome has firmed. While AI-related optimism was questioned toward the end of last year, amid valuation concerns and uncertainty over near-term payoffs, sentiment has improved again in recent days. Latest business surveys suggest little immediate cause for alarm on the global growth front (chart 1), despite clear signs of divergence across regions. At the same time, there are few near-term inflation concerns evident in the data, with global supply-chain pressures remaining subdued (chart 2). Taken together, these developments leave little immediate challenge to the prevailing outlook for monetary policy, with expectations for further gradual easing across several major economies remaining broadly intact (chart 3). At the same time, geopolitical shocks — most notably the upheaval in Venezuela — have reignited focus on energy market risks and sovereign debt uncertainties, adding complexity to oil price expectations and fiscal trajectories (chart 4). Shifting focus, China’s role also continues to remain pivotal: surplus industrial capacity and competitive export pricing continue to shape global trade and exert disinflationary influence (chart 5). Against this backdrop, public debt levels that are both elevated and still rising in many large economies underscore the structural imbalances that could limit policy flexibility and amplify market sensitivities in the immediate months ahead (chart 6).

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Charts of the Week: Cooling Inflation, Diverging Growth

Sandy Batten

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Nonfarm business labor productivity (output per hour) exhibited further robust growth in Q3, increasing 4.9% q/q SAAR following an upwardly revised 4.1% quarterly increase in Q2 (previously +3.3%). A quarterly gain of 4.1% was expected by the Action Economics Forecast Survey. Compared to a year ago, productivity rose 1.9% in Q3 versus 1.5% in Q2. Since productivity growth began to accelerate at the beginning of 2023, it has grown at a well above trend 2.7% annual rate. Strong productivity is a key factor for boosting real incomes and restraining inflation pressures going forward.

Nonfarm business output increased 5.4% q/q in Q3 on top of a 5.2% quarterly rise in Q2 while hours worked edged up just 0.5% q/q, down from 1.0% in Q2. Compensation growth picked up to 2.9% q/q in Q3 from a downwardly revised 1.1% q/q in Q2 (previously +4.3%) although compensation growth from a year ago slowed to 3.2% in Q3 from 3.5%. As a result, unit labor costs declined 1.9% q/q in Q3 following a downwardly revised 2.9% quarterly decline in Q2 (previously +1.0%). On a y/y basis, unit labor costs advanced only 1.2% y/y in Q2, the smallest annual gain since Q3 2023.

Growth of factory output slowed to 2.6% q/q in Q3 from 2.9% in Q2. However, hours worked fell 0.7% in Q3 after having been unchanged in Q2. Consequently, factory productivity growth accelerated to 3.3% from 2.9% in Q2. Factory compensation growth picked up to 4.8% q/q in Q3 from 4.0% in Q2, resulting in a pickup in unit labor cost growth to 1.5% from 1.1% in Q2.

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 output per hour rose 4.9% q/q SAAR in Q3 on top of an upward revision to Q2.
- Compensation increased 2.9% in Q3 resulting in a 1.9% quarterly decline in unit labor costs.