Profit Margins: A Pleasant Surprise Could Be In Store

If the recovery picks up some steam, profit margins could widen appreciably, says economist Susan Lakatos of Kidder, Peabody & Co. Lakatos points out that service-sector productivity last quarter posted its first year-over-year gain since 1988. As a result of this development, which reflects employment cutbacks that began late last year, unit labor costs in the nonmanufacturing sector, compared with their year-earlier level, were up less than service prices for the first time since 1989. So, profit margins in service industries actually widened slightly.

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