Corporate Profits = 11.24% of GDP

I wanted to follow-up on the earlier post about corporate profits hitting an all-time high. Not only are profits so high in nominal terms but they’re also very high as a portion of the GDP.

According to today’s report, corporate profits make up 11.24% of the GDP. This figure plunged dramatically during the recession, reaching a 21-year low of 7.01% for the fourth quarter of 2008.

Before the recession started, profits rose to 12.3% of GDP in the third quarter of 2006. That was the highest level since 1950. The number for last quarter is higher than any reading from 1966 to 2004.

Think of the chart below as a profit margin chart for the entire economy. The good news is that corporate profits have grown thanks to margin expansion. The problem is that, judging by historical standards, profits margins can’t improve that much more.

For profits to continue to grow, sales need to start growing. That means the economy had better start improving by adding new consumers, meaning more workers. More workers, more sales, more profits.

Posted by on November 23rd, 2010 at 10:44 am


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.