Still missing: faster NGDP growth, or expectations thereof

We already discussed at length the evolving and (yet again) disappointing relationship between jobs and profits growth, along with the not-so-anomalous-in-context swings in productivity growth these past few years.

But it’s worth mentioning one more time given this morning’s crapadocious jobs report and the start of earnings season on Monday.

Neal Soss of Credit Suisse in a short note today:

With the low-hanging fruit of lower interest rates and debt service costs already having been harvested, restoration of margins is achieved mainly through keeping a lid on labor costs. To break this pattern, nominal GDP needs to grow considerably faster to foster strong gains in both labor income and profits. It’s hard to see where such growth will come from in the short term, with slowing global growth and fiscal restraint becoming stiffer headwinds.

Were nominal GDP growth accelerating, companies would worry less about margins (and therefore hire more) because top-line revenue growth would compensate for shrinking margins. But that’s not happening.

Related links:
A marginal bet – FT Alphaville
Productivity post-paradox – FT Alphaville

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