Good news is bad news again. The stock and bond markets sold off yesterday following better-than-expected readings for August's NM-PMI. In addition, the prices-paid indexes for both the NM-PMI and M-PMI increased in August heightening fears that inflation may have stopped moderating (chart). We disagree since both remain well below last summer's peaks.
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Today, Q2's revised productivity and costs report showed that hourly compensation rose by 5.7% y/y, while productivity jumped 3.5%. As a result, unit labor costs rose at a modest pace of 2.2% (chart). This series is highly correlated with the CPI inflation rate on a y/y basis and confirms our view that inflationary pressures are easing.