At the same time, unit labour costs in the nonfinancial sector have sunk at a record 4.1% year-on-year pace; therefore, this profits recovery remains primarily a margin-boost from relentless cost cutting as opposed to any sustained top-line improvement. National account profits rose 5.6% QoQ in Q1 — still good but slower than the 8% pace in Q4 and 10.8% rate in Q3.
As Chart 2 illustrates, the ratio of unit selling prices to unit labour costs — a proxy for profit margins — is already pressing against levels it has only seen twice in the past five decades.
For those who have ongoing problem with how the government treats the consumer price index, there is a metric that is tried, tested and true, which is the market-based core PCE price index (the core excludes food and energy). This metric was released yesterday and it eked a 0.3% QoQ annualized increase (basically flat) which was a record low for this particular data series. The YoY trend, depicted below, slowed to an 11-year low of 1.2% in Q1 from 1.7% in Q4 and 2.1% a year ago. The disinflation trend is unmistakable and augurs for income-based investment strategies.
