Corporate Profits Roar Back

Catherine Rampell at the New York Times Economix blog writes that corporate profits are "booming" -- and by some respects she is right. Corporate profits -- unlike employment -- have zoomed back to pre-recession levels and are at their highest nominal level ever after a precipitous drop in 2006 and 2007.

Really, the chart shows not so much a boom as a recovery. Corporate profits have returned to their secular trajectory -- a trajectory which looks like drastic growth because the National Bureau of Economic Analysis doesn't adjust corporate profits for inflation, but which actually represents much more moderate growth approximately equal to GDP growth. Indeed when we examine corporate profits as a percentage of GDP, we see that there is little secular trend in the percentage of the American economy represented by corporate profits.

What this graph does show is that even compared to the US economy in general which suffered during the Great Recession and is slowly coming back, corporate profits fell more in bad times and have come back more quickly and more robustly than the broader economy. While corporate profits are good, especially for people invested in the stock market (which has also recovered recently), most Americans hope that these increased profits mean increased hiring from businesses looking to expand. Employment ought to lag profits and the economy generally somewhat, but even after seven consecutive quarters of growth in corporate profits, the unemployment rate remains high and is expected to remain so for the foreseeable future.
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