A closely watched component of tomorrow’s GDP release by the U.S. Commerce Department’s Bureau of Economic Analysis (BEA) will be corporate profits. Corporate profits receive lots of attention for a variety of reasons. One of those reasons is that corporate profits touch many of us through the linkage between profits (and future expected profits) and stock prices, as those stock prices affect the value of our 401k and other retirement plans.
Profits can also give us an indication of how various industries are faring. However, a challenge to understanding profits on an ongoing basis is that we (the public) are constantly bombarded with profit statements and outlooks for thousands of companies. (For instance, when I Googled “profits” on the news section for the past day, I got close to 39,000 hits, whereas “Libya” produced 58,000.) An attractive feature of the BEA data is that they add up profits across all companies in a consistent way, allowing data users to make useful comparisons over time and across industries.
How have U.S. corporations' profits been doing?
They are still on an upward trend but remain below their previous peak level in 2006. (See Figure 1.) [These “domestic” profits are earned by firms in the United States, but do not include profits repatriated to foreign owners or profits that U.S. owners earned abroad.]
A caveat is that even when nominal profits have fully rebounded, prices have risen (7 percent so far since 2006). Thus, the real value of profits will still be less than it was in 2006.
Industry Breakdown through the Third Quarter Shows Upward Trends...with a Few Exceptions
Figure 2 separates Figure 1 profits into financial and nonfinancial industries, and shows both have risen during 2010, but are not likely to surpass their previous peak levels when the new data are released tomorrow.
Figures 3 and 4 below disaggregate nonfinancial industries in Figure 2. Profits in a few industry sectors have exceeded their previous 2006 peaks – including those of durable goods manufacturers and firms in the information, transportation and warehousing industries. (See Figure 3.) However, profits of nondurable goods manufacturers, wholesale and retail firms, and other firms in nonfinancial industries have not. (See Figure 4.) Nondurable goods manufacturers (food, textiles, apparel, paper, printing, plastics, rubber, chemicals, petroleum) have shown the weakest performance since the last recession, with profits growing little since 2009.
~Mark Doms, Chief Economist, U.S. Department of Commerce
March 24, 2011