In this post, we explore trends in corporate profits, which provides a summary measure of firms’ financial health and can help us gauge the overall performance of the economy. When contrasted with measures of aggregate income, they provide an overview of how income is distributed.
The FRED graph above shows quarterly data on corporate profits from the US national income and product accounts (NIPA) published by the Bureau of Economic Analysis.
Corporate profits (with inventory valuation and capital consumption adjustments) totaled $3.1 trillion in the third quarter of 2024. That’s a significant increase relative to 2019, when corporate profits were $2.2 trillion, and relative to 2010, when they were $1.6 trillion. This increase might reflect an increase in firms’ market power. Although corporate profits have doubled since the end of 2010, so did national income.
Corporate profits in terms of national income have trended upward since the COVID-19 pandemic, but the increase is less spectacular than the nominal value would suggest. Profits have now stabilized at around 15.7% of national income; they were 14.4% of national income in 2010 and 13.6% in 2019.
How does the share of corporate profits compare with the shares of other components of national income? The FRED graph above shows the shares of the four major components of national income*:
- compensation of employees (green dashed, right axis)
- corporate profits (red solid, left axis)
- taxes on production and imports net of subsidies (purple dotted, left axis)
- proprietors’ income (orange dashed, left axis)
(Admittedly, the graph is quite crowded, so here’s a link to the same graph without legends.)
The compensation of employees as a fraction of national income is the mirror image of corporate profits, i.e., it tends to go up when corporate profits go down. Despite the uptick during the pandemic, the compensation of employees is back to pre-pandemic levels, at 62% of national income. In contrast, taxes net of subsidies as a fraction of national income went in the opposite direction. They collapsed during the pandemic and are now back at their historical level, at 8%. Proprietors’ income has been stable over the past few years, also accounting for 8% of national income.
*National income’s 7 components:
- compensation of employees: wages, salaries, and employer contributions for pension funds
- proprietors’ income: income of self-employed individuals and unincorporated business owners
- rental income from housing, land, and natural resources
- corporate profits
- net interest payments: the difference between interest received and interest paid
- taxes on production and imports, e.g., customs duties and excise, property, and sales taxes
- smaller-value items: e.g., government subsidies, surplus of government enterprises, and business current transfer payments
How this graph was created: In FRED, search for “Corporate Profits” and select “Corporate Profits with Inventory Valuation Adjustment (IVA) and Capital Consumption Adjustment (CCAdj) (CPROFIT)” from the search results. Click on the “Edit Graph” button and use the “Edit line” tab to search for “NICUR” or “national income” in the “Customize data” section. In the “Formula” section below, type in 100*(a/b) to get corporate profits as a fraction of national income. Use the “Add Line” tab to find and add the series “National Income: Compensation of Employees, Paid (COE),” “Proprietors’ Income with Inventory Valuation Adjustment (IVA) and Capital Consumption Adjustment (CCAdj) (PROPINC),” and “Taxes on production and imports less subsidies (W254RC1Q027SBEA).” To make these time series a fraction of national income, use the “Edit line” tab to repeat the steps for corporate taxes above.
Suggested by Ricardo Marto.
