Productivity Soars, Unit Labor Costs Decline, Factory Orders Surge, ISM Non-Manufacturing Decelerates

- Final 3Q Non-farm Productivity rose 6.3% versus estimates of a 5.9% gain and a prior estimate of a 4.9% increase.

- Final 3Q Unit Labor Costs fell 2.0% versus estimates of a 1.2% decline and a prior estimate of a .2% decrease.

- Factory Orders for October rose .5% versus estimates of unch. and a .3% gain in September.

- ISM Non-Manufacturing for November fell to 54.1 versus estimates of 55.0 and a reading of 55.8 in October.

BOTTOM LINE: Worker productivity in the US accelerated sharply in the third quarter, causing labor costs to drop by the most since 2003, Bloomberg reported. A separate report from ADP Employer Services said companies added 189,000 jobs in November, more than triple the forecast. As well, Challenger reported a 4.7% decline in job cuts for November. The 3Q increase in productivity reflected the surge in economic activity. US GDP jumped 4.9% last quarter, the most in four years. Moreover, productivity has risen by 2.7% over the last year, the most since the second quarter of 2004. The drop in Unit Labor Costs, the main component of inflation, is a big positive and has likely contributed to the recent decline in the 10-year yield. I continue to expect the job market to remain healthy over the intermediate-term without generating substantial unit labor cost increases.

Orders at US factories unexpectedly rose in October by the most since July, Bloomberg reported. The increase in factory orders was lead by a 1.3% gain in non-durable goods. Demand for plastics, beverages, chemicals and petroleum climbed. Manufacturers had enough goods on hand to last 1.23 months versus 1.24 months worth in September. I continue to expect manufacturing to help boost overall US economic growth as companies gain confidence in the sustainability of the current expansion and rebuild depleted inventories as exports boom.

US services industries continued to expand in November, Bloomberg reported. The New Orders component of the index fell to 51.1 from 55.7 the prior month. The Employment component of the index fell to 50.8 versus 51.8 the prior month. However, the Backlog component jumped to 48.5 from 43.5 the prior month. The Prices Paid component rose to 76.5 from 63.5 the prior month. I expect ISM Non-manufacturing to continue to show expansion over the intermediate-term as consumer spending remains only modestly below long-term average rates.