Economics Weekly: A Top-Down View of Profit Margins

The third-quarter earnings season is now in full swing, and despite the rising inflation and huge disruptions to global supply chains, companies are so far reporting earnings well above what was anticipated (and feared). Given that corporate profitability is a significant driver of equity market returns, the question of course is what's driving these earnings and is it sustainable?

In this Economics Weekly, we examine corporate profits from a top-down perspective, looking at the recent behavior of unit labor costs, price inflation, and output growth as guides to what might happen to margins in the coming quarters.

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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.