Saturday, December 07, 2013

Corporate profits almost double historic norm

This from the Atlanta Journal-Constitution:
[R]eal median household income in the United States has been dropping steadily. Between 1999 and 2012, it fell by 9.1 percent, from $56,080 to $51,017 in 2012 dollars. That's a decrease in annual buying power of more than $5,000 in a relatively short time frame.
Corporate profits
Corporate profits
However, it turns out that a falling tide does not lower all ships. As the chart above documents, corporate profits AFTER taxes have been doing very, very well indeed. And to make things even more interesting, the chart doesn't even include the most recent data, released just this week as the Wall Street Journal reports:
"U.S. companies' revenues are making their way down to the bottom line like never before. Thursday's report on gross domestic product from the Commerce Department showed that after-tax corporate profits in the third quarter as a share of GDP — a proxy for overall profit margins — were a record 11.1%, which compares with an average share since 1929 of 6.1%. That is a reflection of the tight lid companies have kept on hiring and capital spending in recent years.
Analysts polled by S&P Capital IQ expect margins to get even fatter. In 2014, they estimate companies in the S&P 500 will earn 10.7% more than in 2013, despite revenue-growth expectations of just 2.3%. The only way for that to happen is if profit margins expand further."
Let's review that one more time, because it's critically important:

Since 1929, corporate profits have averaged 6.1 percent of our nation's gross domestic product. Between 1970 and 2000, according to Commerce Department data, it averaged less than 5 percent.
But last quarter, corporate profits consumed a record-high 11.1 percent of our nation's gross domestic product, approaching twice the historic average. And next year, analysts predict it will go higher still.
If you do the math, that represents a shift of $800 billion a year to the corporate bottom line compared to the historic norm. And where is that $800 billion being shifted from?

Well, in 1970, 52 percent of our gross domestic product showed up in the paychecks of American workers. Today, according to data compiled by the Federal Reserve Bank of St. Louis, wages and salaries account for barely 42 percent of GDP, a decline of 10 percentage points. In today's economy, that represents an annual shift of almost $1.6 trillion away from salaries and wages. (But the real problem, we're told, is higher taxes, which actually aren't higher at all.... Look over there!)

It boggles the mind that some people can look at numbers like these and conclude that the problem is that the American worker is being treated too kindly, that he or she just isn't working hard enough and is spoiled by government handouts, or that if we just lower taxes on "the producers" it will inspire an economic boom. In one of the most difficult economic eras in our history for most Americans, "the producers" are already enjoying that boom.

However, we're not even supposed to take notice of that historic, transformational shift, or to suggest that maybe, just maybe, we need to adjust our policies to take it into account.

Hat tip to Tom.


Richard Day said...

Arrrgh. I messed up and accidentally deleted a comment and my response to it. My apologies to the readers and commenter for my mistake.

Anonymous said...

Not sure what this has to do with education, but what sort of intervention is needed? Superficially, some would say tax these companies and their leaders more. I am guessing that isn't going to result in them losing their big piece of the pie but instead just more shifting of bank accounts overseas and increased prices on jobs that we have replaced with oversees workers and technology.

In some ways, it is a paradox, the guys who are raking in the bucks are doing so based upon the regulations and taxes codes our legislators have put in place vis-a-vi lobby influence and kickbacks. So should we be disturbed at the business folks or he legislators?