Productivity/Labor Costs Above Estimates, Pending Home Sales Down, Factory Orders Fall

- Final 4Q Non-farm Productivity rose 1.6% versus estimates of a 1.5% gain and a prior estimate of a 3.0% increase.
- Final 4Q Unit Labor Costs rose 6.6% versus estimates of a 3.2% increase and a 1.7% prior estimate.
- Pending Home Sales for January fell -4.1% versus estimates of a -1.2% drop and a 4.5% gain in December.
- Factory Orders for January fell -5.6% versus estimates of a -4.5% decline and a 2.6% gain in December.

BOTTOM LINE: US worker productivity last quarter grew less than the government initially estimated, and labor costs accelerated more than forecast, Bloomberg reported. The 6.6% jump in unit labor costs reflected a one-time increase in bonuses and stock options. The rise in such costs “mostly reflects new assumptions about bonus and stock-option earnings in the fourth quarter,” Patrick Newport, an economist at Global Insight said. I expect unit labor costs to decelerate and productivity to accelerate later this year as economic growth rebounds back to average rates.

Fewer Americans signed contracts to buy previously owned homes in January, Bloomberg reported. “We had quite a significant bounce in December, so the pullback in January is offsetting that,” said Carolyn Kwan, an economist at Scotia Capital Markets. The Realtors’ group reported last week that sales of previously-owned homes, which account for about 85% of the market, rose more than forecast in January to a seven-month high. Pending home sales cover about 20% of the listings on the realtor’s multiple listing service. Pending re-sales fell 11.7% in the South and 2.4% in the Midwest. Pending re-sales rose 9.3% in the Northeast and .2% in the West. I continue to believe housing is in the process of stabilizing at relatively high levels.

Orders placed with US factories declined in January on lower demand for aircraft, computers and construction machinery, Bloomberg reported. Excluding transportation equipment, orders fell 2.9%, the most since September. However, unfilled orders of durable goods rose to the highest on record. I expect factory orders to rebound substantially later this year as auto production rebounds meaningfully and housing presents less of a drag.