Corporate profit margins
Posted by WARREN MOSLER on March 22nd, 2012
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March 22nd, 2012 at 12:42 pm
I searched “NIPA flow of funds” but could not find the origin of this chart, BEA did not have it. Can someone tell me where to look.
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BFG Reply:
March 22nd, 2012 at 10:10 pm
@dan,
Go to the FRED graph section on the St Louis web site and search for CPATAX and scale it by GDP or click the following link.
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BFG Reply:
March 22nd, 2012 at 10:17 pm
@BFG,
Sorry, this page.
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dan Reply:
March 23rd, 2012 at 7:08 am
@BFG,
Thanks, very much appreciated.
Dan
March 22nd, 2012 at 4:54 pm
Could anyone help me to understand how U.S. corporate can get highest profit margins ever during a big crises?
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WARREN MOSLER Reply:
March 23rd, 2012 at 12:59 am
as i’ve been saying for quite a while, modest top line growth, decent productivity gains, and high unemployment keeping unit labor costs down are good for corporations, not so good for people.
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Unforgiven Reply:
March 23rd, 2012 at 9:40 am
@WARREN MOSLER, and interest income from hoarding. Not quite so much these days…
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walter Reply:
March 23rd, 2012 at 5:41 pm
@WARREN MOSLER, Don’t you think that most of those productivity gains come from laying off people, not so much as result from innovative technology etc. In other words, a lot of healthy organizational slack is eliminated, but how long can that last?
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WARREN MOSLER Reply:
March 25th, 2012 at 10:19 am
yes, but not exactly ‘healthy’ as they are also cutting out ‘investment’ with the layoffs.
Greg Reply:
March 25th, 2012 at 8:23 am
@WARREN MOSLER,
But Warren……. Corporations ARE people! The people are are making more profit….. Yeah!!!
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WARREN MOSLER Reply:
March 25th, 2012 at 10:38 am
true. let me restate, good for shareholders, bad for people working for a living. thanks!
Dave Begotka Reply:
March 24th, 2012 at 10:50 am
@Dario,
Bailouts, QE1 QE2 QEcovert……..
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WARREN MOSLER Reply:
March 25th, 2012 at 10:28 am
qe isn’t a bailout
the govt has to set the term structure of rates one way or another. that’s one way.
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March 22nd, 2012 at 7:51 pm
Warren, I’d be interested in your take on this – we hear from a lot of people how profit margins have proven to be very prone to mean reversion in time and that a decline here will result in a large fall in EPS.
Assuming so, one wold assume a catalyst is required – can margins just “happen”? A lot has been said of late about the US deficit being responsible for high corporate profitability and thus the pending decline in the deficit next year poses a risk. Your thoughts??
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WARREN MOSLER Reply:
March 23rd, 2012 at 1:06 am
also, r and d, training, and other ‘investments’ suffer during slowdowns, and these are expensed to max allowed by law to minimize tax liabilities, even though in real terms they may be ‘investment’ and ‘should’ be capitalized rather than expensed.
‘expensing investment’ lowers stated profit margins, and vice versa
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ESM Reply:
March 23rd, 2012 at 10:16 am
@WARREN MOSLER,
Yes, I’ve heard this is the main effect. Much less investment by companies due to macroeconomic uncertainty and pessimism. A lot of investment would ordinarily make its way into the income statement as expense.
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March 23rd, 2012 at 9:10 am
The only problem with this is that accountants have teamed up with executives to render corporate financial statements – particularly the balance sheet – completely and utterly meaningless.
Huge parts of “earnings” are from the financial sector, where “earnings” are what accountants pronounce them to be, not the cash that they might actually generate some day – or not. And as we have seen in the recent past, the probability of “or not” is quite high, particularly when there are almost no consequences of previous years’ “earnings” proving to be smoke and mirrors.
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March 23rd, 2012 at 1:34 pm
This is from a paper by James Montier at GMO. He is a smart guy and actually begins the paper by referencing Marx, Keynes and Kalecki as heterodox economic thinkers vs. rational expectations theorists. I was totally on board with his analysis until he concluded that the budget deficit in the US is unsustainable at current levels and will begin to be lowered over the coming years with a “deficit reduction plan”. Like Warren said, high profit margins are the result of moderate sales growth exceeding growth in input costs (wages) over the last decade or so. I would love to hear someone explain how this reverses w/o business investment, specifically in real estate, heading back to trend which would drive unemployment down and (maybe) apply pressure to profit margins in the form of higher wages. But if that happens, wouldn’t sales growth be stronger as well? My guess is that the trend for profit margins continues higher in the near term for non-financial corporations in the US, but I would love to hear a counter argument as to why that might not be the case.
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March 23rd, 2012 at 1:46 pm
For some reason the “Click here for larger version” link makes my gut turn…
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