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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