THE PROFITS:

Tracing the Real Cause of Ballooning Profit Margins

Gains Have Been in Trillions for the Mega-companies During the COVID Era

CONSTRUCTION

MANUFACTURING

FOOD, LODGING TRANSPORTATION

RETAIL

AGRICULTURE

HEALTHCARE

OVERALL FINANCE

Corporate profits after taxes doubled overall over 2009-2021, according to the above chart from BLS. Industries differed in terms of profit growth in the listed order above, with the highest increase being a mind-blowing figure of 700%.

Gross Value Added shows the economic productivity resulting from the raw corporate inputs including the government subsidies and excluding taxes paid.

It shows pure productivity as opposed to pure profits.

As we can see from the following graph by the Federal Reserve, since 2015, companies have been reaping far more profits per unit of gross value added to economic productivity.

50% increase since 2011

The Guardian compared companies’ quarterly profits growth to median US workers’ wages growth for two years.

115% 9.5B

1B

US WORKERS WAGES MEDIAN INCREASE FROM Q1 2020 - Q1 2022

Companies have been reaping far profits in trillions, hundred times more than their productivity contribution to the economy, especially during the pandemic.

49%

958% 269% 92% 65%

24% 86%

3B

Unit Price Increase have always reflected rising labor costs, up until 2019. The last two years saw corporate profit margins takeover as the main correlate of corporate margins.

CORPORATE PROFITS

LABOR COSTS

OTHER COSTS

CORPORATE PROFITS

LABOR COSTS OTHER COSTS

28% 38% 18%

Evidence from the past 40 years suggests strongly that profit margins should shrink and the share of corporate sector income going to labor compensation (or the labor share of income) should rise as unemployment falls and the economy heats up.

The fact that the exact opposite pattern has happened so far in the recovery should cast much doubt on inflation expectations rooted simply in claims of macroeconomic overheating.

_ JOSH BIVENS, Economic Policy Institute, April 21, 2022.

While corporations enjoy record profits and CEOs get millions more in bonuses, workers are still waiting in vain for better working conditions and working families are still reeling from the immoral price-gougers who jacked up their expenses under the guise of inflation.”

_ HELEN BROSNAN, Fight Corporate Monopolies, August 26, 2022.

“[A]stronomical corporate profits confirm what corporate executives have been telling us on earning calls over and over again: They’re making a lot of money by charging people more, and they don’t plan on bringing prices down anytime soon.”

_ DR. RAKEEN MABUD, Groundwork Collaborative, August 25, 2022.

The glaringly obvious takeaway from this new data is that market power is a key driver of rising prices. Policymakers need to use this new information ... to attack concentrated corporate power immediately and aggressively across the board. That means levying excess profits taxes, ensuring big penalties for price-fixing, and resourcing enforcement agencies to prosecute price-gouging and other forms of corporate abuse.

_ SARAH MILLER, American Economic Liberties Project, August 25, 2022.

We also expect a significant contribution from pricing. We have announced further pricing actions across numerous markets across the globe. We also continue to take appropriate action to hedge our commodity costs with greater flexibility.

- Mondelez, Chief Executive Officer.

A little bit of inflation is always good in our business — we’ve been very comfortable with our ability to pass on [price] increases to consumers.

- Kroger, Chief Executive Officer.

The team has done a marvelous job in driving price. Price has gone up from 0.1% to 1.4% to 2.6%. We see that to be a tailwind.

- 3M (producers of N95 masks), Chief Financial Officer.

Our strong Q3 revenue growth of 11.8% was primarily driven by higher lease rates, which increased 9.5% year-over-year. Certainly, we have some people that are moving out... due to rent increase. But we continue to source demand that is comfortable paying what we are expecting and their incomes appear to support it.

- AvalonBay, Chief Operating Officer.

We expect pricing to be the main driver in that market growth with volumes slightly down. That is a logical consequence of the broad-based pricing that we are seeing in the market.

- Proctor & Gamble, Chief Financial Officer.

We reported a $1.5 billion operating profit, and that's on a network that's 17% smaller than 2019... [A]t the same time, the incremental marginal cost of delivering that supply is substantially lower than any modest price adjustments we would see.

- Delta Airlines, Chief Financial Officer.

Net revenue grew 20%, primarily driven by effective net pricing.... Operating profit increased 17%, primarily reflecting the effective net pricing and productivity savings.

- Proctor & Gamble, Chief Financial Officer.

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