Productivity Slows, Unit Labor Costs Decelerate, Jobless Claims Rise Slightly, Continuing Claims Fall, Factory Orders Rebound

- Preliminary 3Q Non-farm Productivity was unch. versus estimates of a 1.0% rise and a 1.2% gain in 2Q.
- Preliminary 3Q Unit Labor Costs rose 3.8% versus estimates of a 3.4% increase and a 5.4% gain in 2Q.
- Initial Jobless Claims for last week rose to 327K versus estimates of 310K and 309K the prior week.
- Continuing Claims fell to 2415K versus estimates of 2441K and 2442K prior.
- Factory Orders for September rose 2.1% versus estimates of a 4.0% increase and a .3% decline in August.

BOTTOM LINE: US labor costs rose less in the 3rd quarter and productivity slowed, Bloomberg reported. Among manufacturers, productivity rose at a 5.9% pace versus a 2.7% rise in 2Q. Tomorrow’s jobs report is expected to show that companies added 123,000 jobs last month and the unemployment rate stayed at a historically low 4.6%. I expect Unit Labor costs to continue to decelerate over the intermediate-term with productivity rebounding.

The number of Americans filing first-time claims for unemployment benefits rose slightly last week from low levels, Bloomberg reported. The four-week moving-average is still low at 311,250. A separate report from Challenger, Gray & Christmas today showed that companies plan to fire 15% less people this year compared with the same month last year. As well, continuing claims fell to the lowest level since June. The unemployment rate among those eligible for benefits, which tracks the US unemployment rate fell to 1.8%, a new cycle low, from 1.9% the prior week. I expect the job market to remain healthy over the intermediate-term as inflation continues to decelerate, energy prices fall further, companies gain confidence in the sustainability of the current expansion, business spending accelerates, auto production cutbacks subside, housing stabilizes at relatively high levels and interest rates remain low.

Orders placed with US manufacturers rose less than forecast in September, held back by falling oil prices, Bloomberg said. Durable goods orders rose a brisk 8.3%, suggesting that companies are still investing in machinery to improve productivity. Auto bookings fell 6.3% versus a 3.7% rise in August. Non-durable orders, which include oil, fell 4.6%. Orders for capital goods excluding aircraft and defense, a gauge of future business investment, rose 2%, the biggest gain since March. The inventory-to-shipments ratio rose to 1.22 months versus 1.17 months the prior month. I expect factory orders to rebound over the coming months as auto production cutbacks subside and businesses continue spending.