Wrapping up earnings At this point, about 95% of S&P 500 companies have reported their financial and operating results for the third quarter. Driven by strong demand, 81% of these companies have reported results that have exceeded Wall Street’s expectations, on track to grow earnings by over 42% compared to this time last year. This week’s headlines were made by our friendly neighborhood retailers like Walmart, Target, Macy’s, Home Depot and others – all indicating consumers are healthy and ready to shop until they drop. Despite revenues (driven by consumer demand) being really strong, there’s been a big theme during this earnings season – higher costs impacting the bottom line.…

Hot, hotter, hottest The consumer price index (CPI), which measures the changes in the price of a good of baskets over time (aka inflation), increased 6.2% on an annual basis in October. This is the highest reading in the index since the end of 1990. If you exclude food and energy (two of the more volatile goods in the basket), core inflation increased at an annual rate of 4.6%, which is the highest gain since the summer of 1991. Never have I ever seen this level of inflation in my lifetime. Meanwhile, pricing for producers continues to remain elevated, up 8.6% in October, so we likely haven’t seen the end of pricing pressure…

Slacking Productivity for the third quarter came in at a really dismal -5%, which was much worse than expectations and actually the biggest quarterly drop since the summer of 1981. When you combine this with the fact that hourly labor costs increased 2.9%, the total unit labor costs increased 8.3%. This basically means that it cost 8.3% more (from a time and money perspective) to produce the exact same thing – hello inflation. Moral of the story: A big part of this productivity loss was associated with the delta wave that hit us in the third quarter. It’s largely expected that companies will be able to go back to investing money…