>* Since the recession ended in late 2001, aggregate US profit margins
>have risen to their highest level in postwar history. This surge partly
>reflects lower interest rates, lower taxes, and a weaker dollar. But the
>most important factor is that firms, not workers, have captured almost all
>of the recent productivity gains.
>* The key driver of margins is the gap between productivity and real
>wage growth. We expect this gap to remain positive in 2004, as the
>still-slack labor market keeps wages contained. Thus, we expect after-tax
>profits to rise 15% in 2004 and 10% in 2005. The margin expansion is likely
>to come to an end once the labor market tightens enough to push up
>real wage growth.