Forecaster of the Month: Investors and the Fed need to watch squeeze on profit margins, winning forecaster says

The huge tax cut handed to U.S. corporations in December papered over an immense challenge that investors should pay attention to, says Richard Moody, chief economist at Regions Financial and the winner of the Forecaster of the Month contest for June.

Simply put, corporate profit margins — which have been at historically high levels — are being squeezed by higher costs as the expansion enters its ninth year. “Profit margins are past their cyclical peak,” Moody says, but few noticed because after-tax profits were fattened by the reduction in taxes paid. (Profit margins are defined here as the share of revenue that’s kept as profit.

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