Last month I wrote that equities markets were looking for a spark. Subsequent economic data have added more fuel to the potential fire.

The US Dept of Labor reported that second-quarter nonfarm productivity declined 1.8 percent from year ago after labor costs increased 1.1 percent. Growth in nonfarm business output slowed to 1.6 percent, though hours worked jumped 3.5 percent.

These data points suggest that the US workforce is approaching peak productive capacity. Although a string of productivity increases has enhanced corporate profits, companies will have to hire to meet any significant uptick in demand.

Recent employment numbers appear to bear out this thesis. Although the Bureau of Labor Statistics (BLS) found that the national unemployment rate ticked up slightly to 9.6 percent in August, the private sector still hired 67,000 workers. The BLS also revised the number of private-sector hires in July from 71,000 to 107,000.

Despite these gains, nonfarm payrolls shed 54,000 jobs after the Commerce Dept laid off 114,000 census workers. August should be the last month in which large government layoffs skew the data.

Consumer confidence will be a key metric to watch in coming months; lackluster demand is the biggest stumbling block on the road to a sustainable recovery. Consumer confidence edged up slightly from 51 in July to 53.5 in August. And expectations for economic activity over the next six months rose to 72.5 from a revised 67.5.

Although households’ optimism continues to grow, a large cross section of respondents worried that their wages would be cut in the next six months–not the best news for consumer spending.

But there are a few bright spots. Some mid-level retailers reported robust same-store sales, suggesting that consumers are returning to stores and opening their wallets.

Mergers and acquisitions (M&A) also have picked up substantially. As of this writing, deals totaling more than $1.29 trillion had been announced, a 23 percent jump from a year ago.

M&A activity isn’t necessarily a positive force in the economy–many deals result in job cuts as the combined entity trims redundancies–but it does indicate that corporations worldwide continue to find value and opportunity in the market.

All of this bodes well for a market rally in the fourth quarter. Higher trading volume after the summer holiday should quell volatility to some extent. With so few shares changing hands during the summer months, the markets can shift on a dime.