Even though sales fell a sharp 1.3% in September = (later=20 revised to down 2.8%), inventories also fell a surprising revised 0.5% = after a=20 revised drop in August of 0.2%. The inventories had been expected to = expand in=20 August, and only shrink 0.3% in September, given the economic impact of = the 9/11=20 attacks, three day shutdown of all airlines and securities markets, and = the=20 number of people staying glued to their TV rather than going out = shopping. I=20 have seen one report which implies the inventory reduction means imports = were=20 substantially less, which in turn could lead to an upward revision in = the 0.4%=20 shrinkage in GDP for the third quarter. Remember that the 0.4% shrinkage = was far=20 better than the 1.0% expected, so any upward revision means a positive = sign of=20 an economy that, if not yet recovering, is at least not collapsing. Add = to that=20 the sharp improvement in productivity, despite a decline in output, for = Q3 to=20 2.7%, largely due to more hours worked. Compensation costs rose during = the=20 quarter by 3.8%, but overall unit costs only rose by 1.8%. Then the = government=20 announces that retail sales grew more than 7% in October, about triple = what was=20 expected and the best in over three decades (car sales were up 26%, = accounting=20 for a big piece of this, and likely cannibalizing year 2002 sales, but = without=20 cars still up 1%). Can we spend, or what? Bounce from everyone sitting = home=20 watching TV in September? And the International Monetary Fund has = revised=20 downward growth figures for the rest of this year as well as next year. = For=20 Japan, they increased the extent of economic shrinkage expected in 2002 = to 1.3%.=20 At that rate, they will not continue as the world's second largest = economy for=20 too many more years, as the Eurozone continues to grow. And the CPI fell = 0.3%=20 largely due lower energy prices. Without energy and food, the core was = up 0.2%=20 as expected. Industrial production also fell in October 1.1%, 13th month = or so=20 of decline, and capacity utilization also shrank to 74.8% from the = September=20 level of 75.7%.

Mr. Greenspan was quoted in a speech this past week = indicating=20 that so far US industries have only implemented half of the technologies = that=20 will further expand their productivity, and he expects that the slowdown = since=20 March 2000 in purchasing this new technology will resume, pointing to = the latest=20 2.7% growth in productivity as evidence. He also pointed out that the = average=20 growth in productivity in the 1973-1995 era was only 1%, while since = then it has=20 averaged over 3%. Mr. G believes this enhanced productivity is part of = the "new=20 economy" and is here to stay. The latest growth of 2.7% was "far better = than=20 what any of the models, especially the older ones, would have = indicated.'' He=20 also stated that "he believed the long-term outlook for the U.S. economy = ``looks=20 to be extraordinarily good'' despite the weakness demonstrated over the = past=20 year."