CHART OF THE DAY: Unit Labor Cost Will Continue To Eat Profits

When A) wage inflation #accelerates to #LateCycle highs and B) your revenues slow. It’s called margin compression. Only people who have never built and/or ran a company don’t quite fully get the cyclicality of that.

Longer-term, as you can see in today’s Chart of The Day (slide 40 in our Q4 Macro Themes deck):

A) Profits = black line
B) Labor = green line

And there are substantial cyclical and secular takeaways from this basic economic relationship:

1. All the way back to pre-Volcker until the 2000 Cycle peak, Labor was always high and rising
2. Since 2001’s mild recession, Labor got pounded to generational lows
3. From the 2014 post WWII low, Labor has been LOW and slowly rising