A massive drop in corporate tax payments lifted the third quarter NIPA profit margin back to the 10% level for the first time four years. But while we try not to always view the glass as half empty, we find it troubling that margins remain well-below their 2012 highs (10.6%) in spite of this one-time windfall.
EPS growth rates are coming in higher than expected. While sales growth remains muted, the ability of companies to do more with less and maintain high operating margins is impressive. Margins are determined at the discretion of management and are thus sticky and unlikely to drop off significantly unless wage pressures resume and slack capacity around the globe is absorbed.