The Sickening Plunge in Corporate Profits

Here is the evolution of labor compensation and corporate after-tax profits over the past 9 quarters:

Total labor compensation:  $8315.3b.  —->  $9049.5b.  Up 8.8%

After-tax corporate profits:  $1184.6b.  —->  $1099.5b.  Down 7.2%

So why have workers been doing so much better than corporations in recent years?  And why did corporate after-tax profits plunge from $1.3 trillion in 2013 Q4 to $1.1 trillion in 2014 Q1?

I know what you are thinking.  ”I don’t believe those numbers.  Where did you get them?”  I got them from the BEA.  And I don’t believe them either.  And that’s why I don’t believe that nominal GDI fell 1.4% rate in Q1.  Because if you look at components of gross domestic income, you get the following:

Compensation plus depreciation (reliable data):  Up at a 3.7% rate in Q1.

That’s more than 2/3rds of national income.  So basically the unusual (1.4%) plunge in NGDI was a story of plunging corporate profits.  I know of no other data confirming that plunge. Stock prices are soaring.  Corporations have been reporting very strong earnings.  If someone can find non-government data supporting the claim that workers are far outperforming corporations in recent years, I’d love to see the evidence.

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About Scott Sumner 492 Articles

Affiliation: Bentley University

Scott Sumner has taught economics at Bentley University for the past 27 years.

He earned a BA in economics at Wisconsin and a PhD at University of Chicago.

Professor Sumner's current research topics include monetary policy targets and the Great Depression. His areas of interest are macroeconomics, monetary theory and policy, and history of economic thought.

Professor Sumner has published articles in the Journal of Political Economy, the Journal of Money, Credit and Banking, and the Bulletin of Economic Research.

Visit: TheMoneyIllusion

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