US: Margins under pressure

By 18th February 2022The US

Firms’ year-ahead inflation expectations increased significantly to 3.6% during February, up from 3.4% in January, according to the latest Atlanta Fed Business Inflation Expectations Survey.

Businesses in the Sixth District are starting to feel a squeeze on profit margins. The diffusion index for current profit margins (compared to normal times) fell to -22, the lowest since August 2021.

The NFIB Small Business Earnings trends index corroborates this data: the balance for small business earnings peaked in May 2018 and has been trending lower since.

The national accounts measure of profits is at record highs. But there is a caveat: unit profit margins have been inflated by government support measures. When pandemic-related support schemes for businesses run their course, unit non-labour costs should revert to pre-pandemic levels. The big expansion in profit margins seen since the pandemic will likely fade away.

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