Productivity Hit 4-Year High, Unit Labor Costs Fall, Wholesale Sales Jump

- Preliminary 3Q Non-farm Productivity rose 4.9% versus estimates of a 3.2% gain and a downwardly revised 2.2% increase in 2Q.

- Preliminary 3Q Unit Labor Costs fell .2% versus estimates of a 1.0% increase and an upwardly revised 2.2% in 2Q.

- Wholesale Inventories for September rose .8% versus estimates of a .2% gain and an upwardly revised .7% increase in August.

BOTTOM LINE: Worker productivity in the US accelerated more than forecast in the third quarter, leading to a decline in labor costs, Bloomberg reported. Productivity rose the most in four years at a 4.9% annual pace. The decline in unit labor costs was the first in more than a year. Productivity at non-financial corporations, a gauge watched closely by Greenspan, climbed at a 3.8% rate in the second quarter, versus a .7% gain the prior three months. I continue to believe unit labor costs, which make up about two-thirds of inflation, will remain muted over the intermediate-term.

Inventories at US wholesalers rose more than forecast in September, while a bigger increase in sales pointed to production gains in the fourth quarter, Bloomberg reported. Sales jumped 1.3% versus a .8% gain the prior month. The amount of inventory on hand is now down to a new record low of 1.1 months’ supply. Auto sales surged 4.1% during the month. Given the upward revision to August inventories and September’s gain, I suspect 3Q US GDP growth will be revised higher to above 4% from 3.9%. Record low inventories also bode well for increased production this quarter. I still think inventory rebuilding, strong exports and decelerating inflation will continue to more than offset the drag from housing over the intermediate-term, which should result in modestly below trend growth of around 2-2.5%.