US profit outlook – margin squeeze to intensify in mid 2016

Although US wage pressures are expected to intensify in the second half of the year, the impact on margins should be offset by strong consumer demand (i.e. good revenue growth) and a pickup in productivity gains.

"What is the outlook for profit margins and for the rest of the business cycle?Margins will remain range-bound over the next 2-3 quarters, but are likely to come under more significant pressure around the middle of next year. However, by mid-2016, the calculus becomes more difficult", says Societe Generale. 

Consumption growth will likely moderate as the oil price dividend fades, and with unemployment well below 4%, wage growth should be running in a 2.5-3.0% range. The squeeze from interest and depreciation will be less pronounced in this cycle given the relatively shallow tightening path and investment restraint.