One Huge Reason Profit Margins Might Not Collapse

With profit margins near historical highs, and commodity prices rising, it’s being taken as a given that margins are due to collapse.

Henry Blodget cited this fact in his bearish call on the market this weekend.

But UBS notes something curious here. The first is that, per the ISM, we’re in a very weird state where capacity utilization remains low, yet input costs are rising. The big light blue box in the bottom right is the current economy.


Photo: UBS

So that’s weird, but then they note that capacity utilization is on the rise, and that’s good for margins, as companies get economies of scale.


Photo: UBS

So while margin pressure will take its toll, there’s a lot of room for improving margins on the capacity utilization front.

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