Businesses reap profits when their total revenue exceeds total expenses. In other words, there’s a profit if the sale price of a good or a service is higher than the sum of its direct production cost (e.g., labor, materials) and the overhead costs of operating the business (e.g., administration). The term “markup” stands for the difference between production cost and sale price.

The FRED graph above shows data from the US Bureau of Economic Analysis on the percent share of national income represented by corporate profits, before taxes, between 1947 and 2024. In broad terms, that share declined between 1947 and 1986, reaching an all-time low of 6.8%. It bounced back afterward, and at the time of this writing it stands at 16.7%.

The rise in business profits, with its associated rise in markups, is the focus of recent research by Ricardo Marto at the St. Louis Fed. He finds that the overall rise in markups has been driven by larger service markups, which have grown faster than markups on manufactured goods. His analysis goes on to consider the role of consumer preferences for services, concluding that higher incomes and an increased willingness to pay for services are the driving forces behind the rise in markups.

For more about this and other research, visit the publications page of the St. Louis Fed’s website, which offers an array of economic analysis and expertise provided by our staff.

How this graph wase created: Search FRED for “National income: Corporate profits before tax (without IVA and CCAdj).” Next, click the “Edit Graph” button and use the “Line 1” tab to customize the data by searching for and adding “National income: Corporate profits before tax (without IVA and CCAdj).” Last, type the formula (a/b)*100 and click on “Apply.”

Suggested by Diego Mendez-Carbajo.