Corporate profits are soaring despite declining sales and temps are working longer hours than regular employees. What gives?
One aspect that defines our current economy is that things are happening that shouldn’t be happening. I don’t mean that things are happening that are illegal or immoral. (Well, some of them are immoral, but that’s not what I mean.) Rather, things are happening that defy economic logic—a slippery term that really means, the economic patterns of roughly the past half-century.
The first such logic-defying thing is that corporate profits are soaring even as corporate revenues limp along. The quarterly reports of S&P 500 corporations for the first three months of 2013 are almost entirely in now, and they show profits rising by more than 5 percent even while revenues have risen by less than 1 percent. Seventy percent of these companies—the largest publicly traded U.S. firms—exceeded the analysts’ profit projections. On the other hand, 60 percent came in under the projections for their sales.
Were this disjuncture just a one-time epiphenomenon, we could pass it off as a statistical oddity, but it’s not. Profits of American corporations have become decoupled from the other indices of American economic well-being with which they’ve historically been linked. They currently comprise the largest share of the nation’s economy that they have since World War II. Yet the increase in consumer spending in the 15 quarters since the recession’s official end is lower than its increase 15 quarters after the recessions of 1982, 1991, and 2001 ended. Similarly, 15 quarters after the recession ended, the increase in GDP is lower than it was in those three preceding recessions. So spending and growth are lagging while profits soar. What gives?
Part of the answer is that the S&P 500 now sell roughly half their wares abroad, so they’re less dependent on the health of the U.S. economy to hit or exceed their profit targets. But how to account for the increase in profits when revenues—which, like profits, are measured globally—also decline? (more…)