The debate over the sustainability of record high profit margins rages on.
Not so fast, argues Goldman Sachs.
“We think it is premature to call the Q1 decline a turning point for three reasons,” writes Goldman economist David Mericle. “First, most of the decline in the national accounts measure of corporate profits arose from the BEA’s adjustment for the expiration of bonus depreciation, a somewhat uncertain procedure. Second, weak growth and productivity in Q1 likely weighed on profits, but should strengthen going forward. Third, wage growth has shown little evidence of a pick-up and remains well below the rate that would consistently detract from margins. We instead expect margins to rise a touch this year and next.”
Mericle believes that high profit margins will help contribute to stronger investment spending by businesses.
Here’s a look at Goldman’s S&P 500 profit margin forecast via its equity strategy department.