Thursday, March 6, 2014

Corporate Profits In America - It's A Growth Business

Now that we are once again in the midst of yet another season of annual and quarterly corporate profit data, I thought that it would be pertinent to look at how corporate profits have fared since the depths of the Great Recession and how the recovery has felt to Corporate America.

Here is a graph from FRED showing corporate profits before tax, excluding inventory valuation and capital consumption adjustments (IVA and CCAdj) since the beginning of 2009:

Before tax profits rose from $904.6 billion in the first quarter of 2009 to a new annual, seasonally adjusted record of $1.8668 trillion in the third quarter of 2013, an increase of 106.4 percent.

Here is a graph showing corporate profits after tax, again, excluding IVA and CCAdj:

After tax profits rose from $1.038 trillion in the first quarter of 2009 to $1.8687 trillion in the third quarter of 2013, an increase of 80 percent.

I found this graph rather interesting.  It shows how rapidly corporate profits have grown since the beginning of the new millennium compared to the years between the Second World War and the end of the 1990s, a trend that was rather rudely interrupted by the Great Recession:

Notice how the line steepens after the 2001 recession?  Over the fifty years between 1947 and the end of 1999, after tax corporate profits rose from $21.9 billion to $523.1 billion.  Over the 13 years since 2000, corporate profits have risen from $523.1 billion to $1.868.7 trillion.  One would have to wonder how much higher current corporate profits would be had the Great Recession not caused profits to drop to levels that hadn't been seen in nearly a decade.

Now, let's look at a graph that shows what percentage of GDP is comprised of corporate after tax profits (without the aforementioned IVA and CCAdj) looking all the way back to the Second World War:

In the third quarter of 2013, after tax corporate profits made up 11.049 percent of GDP, a post-Second World War high.  You'll also note that corporate profits as a percent of GDP fell to one of the lowest levels in the past three generations during the Great Recession, falling from a high of 10.13 percent in the third quarter of 2006 to a low of 4.62 percent in the third quarter of 2008.  In the five years since the depths of the Great Recession, corporate profits as a percentage of GDP have more than doubled to record levels.

To change the subject slightly, here's a graph showing the federal government annual corporate tax receipts paid on corporate income since the beginning of the new millennium:

In 2006, Corporate America remitted $395 billion in federal taxes on $1.655 trillion in before tax profits.  In 2012, Corporate America remitted $351 billion in federal taxes on $1.812 trillion in taxes, a drop of $44 billion in remittances on an increase of $157 billion in before tax profits.  All-in-all, in 2012, Corporate America remitted 19.37 percent of before tax profits to Washington, well below the 35 percent headline corporate tax rate.

Lastly, here is a graph showing total employee compensation (wages and salary) as a multiple of corporate after tax profits:

Doesn't it seem funny that, when corporate profits are at all-time highs before and after taxes and as a percentage of GDP, that total employee compensation as a multiple of profits is now at an all-time low, particularly in light of the fact that Corporate America is prodding Washington to further lower the rate of corporate taxation and skip the idea of increasing the minimum wage?

Let's just say that the last five years have been among the best experienced by Corporate America since the end of the Second World War and that those who dwell in the corner offices have been among the recovery's biggest beneficiaries.  The same cannot be said for the rest of us, particularly the 10 million out-of-work Americans.


  1. Your post is more proof that something is very wrong inside our economy. It would be interesting to see how these profits break down by different sectors of the economy!

  2. Thanks Bruce. I'll have to see if the data is available.

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  4. Another thought, how much of these "profits" are the result of lower borrowing cost for these companies? Savings from interest on loans and bonds go straight to a companies bottom-line. This has been one time benefit of QE and the super low interest rates.