Profit Margins. Yardeni Research, Inc. April 3, Dr. Edward Yardeni. Mali Quintana. thinking outside the box

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1 Profit Margins April, 1 Dr. Edward Yardeni 1-- eyardeni@ Mali Quintana --1 aquintana@ Please visit our sites at www. blog. thinking outside the box

2 Table Of Contents Table Of Contents Pricing & Unit Labor Costs 1 Nonlabor Costs Unit Costs Capacity Utilization Leading/Lagging Ratio Productivity - Unit Labor Costs Wages & Salaries Real Compensation Per Worker Relative Profit Margins: S&P Sectors -1 Relative Profit Margins: Consumer 1-1 Relative Profit Margins: Energy 1 Relative Profit Margins: Health Care 1 Relative Profit Margins: Industrials 1 Relative Profit Margins: Technology 1 Relative Profit Margins: Materials Relative Profit Margins: Materials & Telecom 1 April, 1 / Profit Margins www.

3 Figure 1. NONFINANCIAL CORPORATE BUSINESS - Pricing & Unit Labor Costs - 1 Implicit Price Deflator (as a ratio of Unit Labor Costs) Q 1 1. Unit Profits Source: US Department of Commerce, Bureau of Economic Analysis and US Department of Labor, Bureau of Labor Statistics. 1 Figure. NONFINANCIAL CORPORATE BUSINESS (yearly percent change) 1 Implicit Price Deflator Unit Labor Costs Q Source: US Department of Labor, Bureau of Labor Statistics. - Page 1 / April, 1 / Profit Margins www.

4 1 Figure. UNIT NONLABOR COSTS (=) - Nonlabor Costs Q Q 1 Nonfarm Business Nonfinancial Corporations Source: US Department of Labor, Bureau of Labor Statistics. 1 Figure. UNIT NONLABOR COSTS (yearly percent change) Nonfarm Business Nonfinancial Corporations 1 Q Source: US Department of Labor, Bureau of Labor Statistics. -1 Page / April, 1 / Profit Margins www.

5 - Unit Costs - Figure. NONFARM BUSINESS (yearly percent change) Nonfarm Business 1 Unit Labor Costs Unit Nonlabor Costs 1 Q Source: US Department of Labor, Bureau of Labor Statistics. - Figure. NONFINANCIAL CORPORATIONS (yearly percent change) Nonfinancial Corporations 1 Unit Labor Costs Unit Nonlabor Costs 1 Q Source: US Department of Labor, Bureau of Labor Statistics. -1 Page / April, 1 / Profit Margins www.

6 1 Figure. - Capacity Utilization - PROFIT MARGIN & CAPACITY UTILIZATION 1 Nonfinancial Corporate Profit Margin* 1 Capacity Utilization: All Industries Q * After-tax profits including Inventory Valuation Adjustment (IVA) and Capital Consumption Adjustment (CCAdj) divided by nominal GDP. Note: Shaded areas are recessions according to the National Bureau of Economic Research, which determined that a peak in business activity occurred in the US economy in March 1. Source: US Department of Commerce, Bureau of Economic Analysis and Board of Governors of the FRS. Figure. PRICING-POWER RATIO Q 1 Prices Received/Prices Paid* (1-month average) Mar Nonfinancial Corporate Profit Margin * Prices received & prices paid plus. Source: Federal Reserve Bank of Philadelphia, Business Outlook Survey and US Department of Commerce, Bureau of Economic Analysis. Page / April, 1 / Profit Margins www.

7 - Leading/Lagging Ratio Figure. LEADING/LAGGING RATIO & PROFIT MARGIN Leading Economic Indicators/ Lagging Economic Indicators (purple line, left scale) Q After-Tax Corporate Profit Margin (using current production profits) (green line, right scale) Note: Shaded areas are recessions according to the National Bureau of Economic Research. Source: US Department of Commerce, Bureau of Economic Analysis and Conference Board. Feb Figure. LEADING/LAGGING RATIO & PROFIT MARGIN Leading Economic Indicators/ Lagging Economic Indicators (purple line, left scale) Q After-Tax Nonfinancial Corporate Profit Margin (green line, right scale) Note: Shaded areas are recessions according to the National Bureau of Economic Research. Source: US Department of Commerce, Bureau of Economic Analysis and Conference Board. Feb Page / April, 1 / Profit Margins www.

8 - Productivity Figure. PRODUCTIVITY MEASURES (=, ratio scale) Q 1 1 Nonfarm Business Nonfinancial Corporations Manufacturing Source: US Department of Labor, Bureau of Labor Statistics. Figure 1. PRODUCTIVITY: NONFARM BUSINESS (yearly percent change) in four-quarter moving average Q Source: US Department of Labor, Bureau of Labor Statistics. - Page / April, 1 / Profit Margins www.

9 - Productivity - Figure 1. PRODUCTIVITY MEASURES (yearly percent change) Nonfarm Business Nonfinancial Corporations Q Source: US Department of Labor, Bureau of Labor Statistics Figure 1. NONFARM BUSINESS MINUS NONFINANCIAL CORPORATE PRODUCTIVITY (yearly percent change) 1 Q Source: US Department of Labor, Bureau of Labor Statistics. - Page / April, 1 / Profit Margins www.

10 1 1 Figure 1. LABOR COST MEASURES (yearly percent change) - Unit Labor Costs Nonfarm Hourly Compensation Employment Cost Index Q Source: US Department of Labor, Bureau of Labor Statistics. 1 Figure 1. UNIT LABOR COSTS (yearly percent change) 1 Nonfinancial Corporations Total Nonfarm Business Q Source: US Department of Labor, Bureau of Labor Statistics. - Page / April, 1 / Profit Margins www.

11 - Wages & Salaries - Figure 1. WAGES & SALARIES (as a percent of personal income) Wages & Salaries Plus Supplements Feb Wages & Salaries Feb Source: US Department of Labor, Bureau of Labor Statistics and US Department of Commerce, Bureau of Economic Analysis. 1 1 Figure 1. SUPPLEMENTS TO WAGES & SALARIES (as a percent of wages & salaries plus supplements) Feb Source: US Department of Labor, Bureau of Labor Statistics. Page / April, 1 / Profit Margins www.

12 - Real Compensation Per Worker - Figure 1. REAL COMPENSATION PER WORKER & PRODUCTIVITY Q 1 Real Pre-Tax Compensation Per Payroll Employee* (thousand dollars, -month average, sa) Nonfarm Productivity (=) Feb Feb Real Wages & Salaries Per Payroll Employee (thousand dollars, -month average, sa) * Three-month average of wages & salaries plus supplements to wages & salaries divided by personal consumption expenditures deflator divided by payroll employment. Source: US Department of Commerce, Bureau of Economic Analysis, and US Department of Labor, Bureau of Labor Statistics. Figure. SOURCES OF REAL LABOR INCOME (yearly percent change) Real Pre-Tax Compensation Per Payroll Employee* Feb Payroll Employment * Three-month average of wages & salaries plus supplements to wages & salaries divided by personal consumption expenditures deflator divided by payroll employment. Source: US Department of Commerce, Bureau of Economic Analysis, and US Department of Labor, Bureau of Labor Statistics. Page / April, 1 / Profit Margins www.

13 1 1 Figure 1. - Relative Profit Margins: S&P Sectors - S&P OPERATING PROFIT MARGINS (trailing -quarter EPS, percent) S&P Composite Consumer Staples Health Care Q Figure. S&P OPERATING PROFIT MARGINS (trailing -quarter EPS, percent) S&P Composite Consumer Discretionary Information Technology Q Page / April, 1 / Profit Margins www.

14 1 1 Figure. - Relative Profit Margins: S&P Sectors - S&P OPERATING PROFIT MARGINS (trailing -quarter EPS, percent) S&P Composite Energy Industrials 1 1 Materials Q Figure. S&P OPERATING PROFIT MARGINS (trailing -quarter EPS, percent) 1 1 S&P Composite 1 Telecommunications Services Q Page 1 / April, 1 / Profit Margins www.

15 1 1 1 Figure. - Relative Profit Margins: Consumer - S&P OPERATING PROFIT MARGINS: CONSUMER DISCRETIONARY (trailing -quarter EPS, percent) Q Consumer Discretionary Sector Advertising Automobile Manufacturers Auto Parts & Equipment Publishing Figure. S&P OPERATING PROFIT MARGINS: CONSUMER DISCRETIONARY (trailing -quarter EPS, percent) Consumer Discretionary Sector Casinos & Gaming Movies & Entertainment Hotels, Resorts & Cruise Lines Restaurants Q Page 1 / April, 1 / Profit Margins www.

16 Figure. - Relative Profit Margins: Consumer - S&P OPERATING PROFIT MARGINS: CONSUMER DISCRETIONARY (trailing -quarter EPS, percent) Q 1 Consumer Discretionary Sector Apparel Retail Department Stores Specialty Stores Figure. S&P OPERATING PROFIT MARGINS: CONSUMER DISCRETIONARY (trailing -quarter EPS, percent) Consumer Discretionary Sector Household Appliances Homebuilding Computer & Electronics Retail Home Improvement Retail Q 1 - Margins capped at -% due to extreme values Page 1 / April, 1 / Profit Margins www.

17 1 Figure. - Relative Profit Margins: Consumer - S&P OPERATING PROFIT MARGINS: CONSUMER STAPLES (trailing -quarter EPS, percent) Consumer Staples Sector Household Products Packaged Foods & Meats Personal Products 1 1 Q Figure. S&P OPERATING PROFIT MARGINS: CONSUMER STAPLES (trailing -quarter EPS, percent) Consumer Staples Sector Brewers Drug Retail Soft Drinks Tobacco Q Page 1 / April, 1 / Profit Margins www.

18 - Relative Profit Margins: Energy - 1 Figure 1. S&P OPERATING PROFIT MARGINS: ENERGY (trailing -quarter EPS, percent) 1 Energy Sector Integrated Oil & Gas Oil & Gas Refining & Marketing Q Figure. S&P OPERATING PROFIT MARGINS: ENERGY (trailing -quarter EPS, percent) Energy Sector Oil & Gas Drilling Oil & Gas Equipment & Services Oil & Gas Exploration & Production Q Page 1 / April, 1 / Profit Margins www.

19 Figure. - Relative Profit Margins: Health Care - S&P OPERATING PROFIT MARGINS: HEALTH CARE (trailing -quarter EPS, percent) Health Care Sector Biotechnology Health Care Equipment Managed Health Care Q Figure. S&P OPERATING PROFIT MARGINS: HEALTH CARE (trailing -quarter EPS, percent) Health Care Sector Health Care Facilities Pharmaceuticals Health Care Distributors Q Page 1 / April, 1 / Profit Margins www.

20 1 1 Figure. - Relative Profit Margins: Industrials - S&P OPERATING PROFIT MARGINS: INDUSTRIALS (trailing -quarter EPS, percent) Industrials Sector Construction & Farm Machinery & Heavy Trucks Q 1 1 Industrial Conglomerates Industrial Machinery Figure. S&P OPERATING PROFIT MARGINS: INDUSTRIALS (trailing -quarter EPS, percent) Industrials Sector Aerospace & Defense Electrical Components & Equipment 1 Q Page 1 / April, 1 / Profit Margins www.

21 Figure. - Relative Profit Margins: Technology - S&P OPERATING PROFIT MARGINS: INFORMATION TECHNOLOGY (trailing -quarter EPS, percent) 1 Information Technology Sector Application Software Data Processing & Outsourcing IT Consulting & Other Services Systems Software Q Figure. S&P OPERATING PROFIT MARGINS: INFORMATION TECHNOLOGY (trailing -quarter EPS, percent) Information Technology Sector Communications Equipment Computer Hardware Computer Storage & Peripherals Semiconductors Semiconductor Equipment Q Page 1 / April, 1 / Profit Margins www.

22 1 Figure. - Relative Profit Margins: Materials - S&P OPERATING PROFIT MARGINS: MATERIALS (trailing -quarter EPS, percent) 1 Q Materials Sector Aluminum Paper Products Steel Figure. S&P OPERATING PROFIT MARGINS: MATERIALS (trailing -quarter EPS, percent) Materials Sector Diversified Chemicals Industrial Gases Specialty Chemicals Q Page / April, 1 / Profit Margins www.

23 1 - Relative Profit Margins: Materials & Telecom - Figure 1. S&P OPERATING PROFIT MARGINS: MATERIALS (trailing -quarter EPS, percent) Materials Sector Forest Products Gold Metal & Glass Containers Diversified Metals & Mining Paper Packaging Q Figure. S&P OPERATING PROFIT MARGINS: TELECOMMUNICATION SERVICES (trailing -quarter EPS, percent) Telecommunication Services Sector Integrated Telecommunication Wireless Telecommunication 1 Q - - Margins capped at -% due to extreme values Page 1 / April, 1 / Profit Margins www.

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