U.S. Corporate Profit Margins Must Go Down: Goldman Sachs

After-tax profits as a share of GNP in the U.S. will drop to 8.2% by 2017, largely due to further tightening in the labor market and accelerating wage growth, reports Goldman Sachs. Jan Hatzius and colleagues note in their March 5 research note titled "Corporate profit margins: What goes up must come down” that declining profit margins have often presaged a recession in the past.

U.S. corporate profit margins steadily declining

Hatzius and team point out that U.S. corporate profit margins have declined steadily over the past few years across the S&P 500 and the broader National Income and Product Accounts (NIPAs). They point out that profit margins for the index and NIPA are now roughly 1pp below their post-crisis peaks.

The analysts highlight that...