Labor Costs May Hit Corporate Margins in 2011: Citi Strategist

Risks for 2011 Markets
Risks for 2011 Markets   

Despite the high unemployment rate, we may see an increase in labor costs in 2011 that will put pressure on corporate margins, Tobias Levkovich, Citi’s chief US equity strategist, told CNBC.

“If you have a college degree, your unemployment rate is around 5 percent, but if you don’t have a high school degree, then the unemployment rate is around 16 percent, so there’s massive deviation around that average 9.8 percent,” Levkovich explained.

“If you’re a gaming company…and you need programmers, that’s going to be expensive. If you need somebody to wash dishes, it’s not going to be that expensive—and I think that’s where we might get (labor cost) creep that nobody expects,” he added.

S&P Outlook: Ups and Downs

Levkovich told CNBC he has a “conservative” target of 1,300 for the S&P 500 for the end of 2011.

“We think the beginning of the year is going to be relatively strong, supported by economic activity, and we’ll trade up well above that target, and then we’ll pull back because we get into some of these margin issues,” he concluded.

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Disclosures:

Disclosure information was not available for Tobias Levkovich or his company.

* General Electric is the current corporate parent of NBC Universal, the parent, in turn, of CNBC. Comcast has entered into an M&A agreement with GE/NBCU.

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