Wednesday, October 7, 2009

Third Quarter Earnings Season: (It's the Profit Margins [for now])

From The Pragmatic Capitalist:
...We are likely to see much of what we saw in Q2 repeat itself in Q3. Unit labor costs have come down at an annualized 5.5% pace in the first half of the year. This is the second largest on record and has allowed corporations to cut costs at a rate that is substantially faster than their revenue deterioration. The math here is simple –profit margins are expanding rapidly. The last time the margin divide was this wide was in 1983. Revenues are likely to be largely in-line or worse than expected, but the market is unlikely to punish firms this early in the earnings recovery....
Here's TPC's page, "Our outlook for earnings".
HT: The End of Western Civilization who writes: technicals following such a huge equity rally, particularly with liquidity concerns afoot -- but the fundamental backdrop here is very positive in spite of steady credit contraction and revenue slides. i have worried about the margin compression in inputs -- but the biggest input cost is labor, and labor is getting much cheaper.