Margin squeeze coming, says Rosenberg

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Has the moment finally arrived when profit margins start reverting to mean? David Rosenberg, Chief Economist and Strategist of Gluskin Sheff & Associates, seem to think so and argues his case below.

“We saw more evidence that companies are facing an intense profit margin squeeze with the recent macro data. The chart below is the spread between Philly Fed prices paid (input costs) and received (prices charged). The last time the spread was at 46.2 was in June 1979 … that was not a good foreboding: the four-quarter EPS trend swung from +21% to -9% a year later. The producer price index data told the same story on margins — the ratio of PPI at the crude stage to PPI at the final gate just broke above 1.3x … there were only three other episodes where this ratio was above 1.3 … in each case, EPS growth slowed substantially all three times in the next year.”

Source: David Rosenberg, Gluskin Sheff & Associates – Breakfast with Dave, February 18, 2011.

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1 comment to Margin squeeze coming, says Rosenberg

  • rice

    I just watched an ifeng TV (Chinese media) special report program about the China exporters are now simply just to refuse to take orders from overseas because not only not making profit but losing lots of money due to commodities prices going crazy plus labor cost increasing! To embrace yourself for empty store selves and inflation soon, Americans. Go out to shop for fire sell now. The fiat money will buy not much soon. It will takes years for thing to be producers to relocate somewhere cheaper somewhere where workers know how to make things.

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