CHART OF THE DAY: Why Productivity ↓ = Real Earnings ↓

Editor's note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye U.S. Macro analyst Christian Drake. Click here to learn more.


CHART OF THE DAY: Why Productivity ↓ = Real Earnings ↓ - 5 5 cod


"... There also exists some equally relavant but less direct associations to the deceleration in employment growth.

  • As the Chart of the Day below illustrates,  while employment growth is slowing it is still rising at a premium to output growth …
  • Employment Growth > Output Growth:  Employment growing faster than output is a different way of saying that productivity is declining and unit labor costs are rising which, in turn, serves as a drag on Profitability …
  • Input Costs > Output Prices:  If the price to produce something (unit labor costs) is growing faster than the price at which that something can be sold (implied by the GDP deflator) then margin pressure will remain ongoing.  In a situation of slack demand and declining productivity, employment gains are somewhat bittersweet.  A rising employment-to-population ratio is largely paid for via margin compression … which then (unsurprisingly) manifests in the much discussed crescendo of companies reporting adjusted, non-GAAP earnings in an attempt to mask the more dour underlying reality.    
  • Productivity ↓ = Real Earnings ↓:  Over the longer-term the trend in productivity drives the trend in real earnings growth.  Recall, real earnings are earnings measured in units of goods and services and the more goods and services each person can produce (i.e. productivity) the more each person can consume.  Declining profitability and productivity can function in a negative self-reinforcing fashion.  Declining profitability disincentivizes business from both hiring and investing and protracted underinvestment will curtail gains in productivity."

The Macro Show with Keith McCullough Replay | May 6, 2016

CLICK HERE to access the associated slides.


 An audio-only replay of today's show is available here.

An Animated History Of U.S. #GrowthSlowing

In this animated video, Hedgeye CEO Keith McCullough walks through the recent history of the #LateCycle U.S. economy, exploring peak corporate profits in 2014 to today’s lackluster growth.

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MUST-SEE REPLAY | Key Trends in the Restaurant Industry: Speaker Series

watch the replay below

CLICK HERE to access the associated slides

*They will be available approximatley one hour prior to the call (please refresh your browser after 10AM to access the full presentation).


Friday, May 6th our Restaurants analysts Howard Penney and Shayne Laidlaw hosted the second installment of our guest speaker series. Phil Mangieri and Wally Butkus of Restaurant Research, Phil Hofmann BDO USA, LLP and other industry thought leaders  that focus on underwriting remodel/capex loans and unit valuations (see speaker bios below) joined Howard in the thoughtful discussion.


They discussed industry trends with key implications for high-conviction companies our Restaurants team covers, like McDonald's (MCD), Wendy's (WEN), Darden Restaurants (DRI) and Yum! Brands (YUM).


The call will focused on unit remodeling and answered questions about:

  • Current state of franchise systems
  • How leveraged are franchisees
  • Time involved to complete remodel initiatives
  • Costs of remodels
  • ROI of remodels
  • Feedback from franchisees



Phil Hofmann - BDO

Phil provides consulting services on client engagements related to tax compliance and conflict resolution. Phil worked with the IRS for more than 30 years, and is well-versed in the food and beverage, retail and hospitality industries. He has deep experience providing consulting services on a variety of restaurant industry-specific issues, including cost segregation, bonus depreciation, tangible capitalization regulations, vendor allowances, Work Opportunity Tax Credit and charitable contributions, among others. He is a frequent speaker and instructor, most notably for the National Restaurant Association and the AICPA, and he is a regular contributor to BDO’s restaurant blog, Selections. Phil received his B.S. in Business Administration at Nebraska Wesleyan University.


Philip Mangieri – Restaurant Research

Mr. Mangieri is the co-founder of Restaurant Research LLC.  He was formerly FMAC’s SVP and Director of Research where he managed the Research Group’s franchisor relationships, created research processes and policies and designed research products. Prior to FMAC, he served as the head of all restaurant and energy related research for Lehman Brothers’ Franchise Finance Group.


Phil's background also includes experience in equity research gained as a Vice President-Senior Research Analyst at Cowen & Company. He earned a Bachelors degree in economics from The College of William and Mary and an MBA from New York University where he graduated with honors.


Walter Butkus - Restaurant Research

Mr. Butkus also co-founded Restaurant Research.  Mr. Butkus has been involved in analyzing the restaurant industry for over 18 years and was formerly employed at FMAC as a Senior Research Analyst where he was responsible for analyzing companies and trends within the chain restaurant industry. Wally graduated summa cum laude from the University of Connecticut with a bachelor’s degree in finance.

Cartoon of the Day: Stuck

Cartoon of the Day: Stuck - Fed cartoon 05.05.2016


What more can the Fed do? A preponderance of economic data is rolling over despite the central planner's best efforts.

About Everything: The Great Productivity Slowdown

In this complimentary edition of About Everything, Hedgeye Demography Sector Head Neil Howe explains why the much-debated productivity shortfall – amounting to $3 trillion – is "simply far too vast to pin on mismeasurement." Howe suggests, "It’s time to take the productivity slowdown seriously" and explains the broader implications for investors.


Click here to read Howe’s associated About Everything piece.

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