Chart of the Week: Profits at a Record

Chart of the Week: Profits at a Record

September 2, 2022

While Federal Reserve Chair Jerome Powell stole the show in Jackson Hole last week and had onlookers reevaluating the probability of a recession ahead, the most recent data on corporate profits flew under the radar.

In fact, U.S. companies were more profitable than ever in the second quarter, according to the Bureau of Economic Analysis. But it’s not just the absolute level of money coming in that matters; it’s also what companies keep after taxes and expenses—aka “profit margins.” Through June, profit margins improved compared to the first three months of the year, and they remain near record levels.

This tells us two things. First, if we are in fact heading for a recession, companies are starting from a position of strength. Second, so far, major U.S. businesses have been able to pass higher input costs on to customers in the form of higher prices. While that’s not great for consumers, it’s a positive for investors. We’ll be keeping an eye on profit margins in the quarters ahead, as we don’t expect companies will be able to keep raising prices forever. That said, if inflation is in retreat, input costs should also abate a bit.

Note: Chart shows U.S. corporate profit margins on a quarterly basis from March 1947 through June 2022. Profit margins were calculated by dividing Corporate Profits After Tax with Inventory and Capital Consumption Adjustments by Nominal Gross Domestic Product. Source: Bureau of Economic Analysis.

This material is distributed for informational purposes only. The ideas and opinions contained herein  should not be viewed as recommendations or personal investment advice. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.

Our statements and opinions are subject to change without notice. You may request a free copy of the firm’s Form ADV Part 2, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged.

Past performance is not an indication of future returns. Tax, legal and insurance information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice, or as advice on whether to buy or surrender any insurance products. Personalized tax advice and tax return preparation is available through a separate, written engagement agreement with Adviser Investments Tax Solutions. We do not provide legal advice, nor sell insurance products. Always consult a licensed attorney, tax professional, or licensed insurance professional regarding your specific legal or tax situation, or insurance needs.

For a summary of Adviser Investments’ advisory services and fiduciary responsibilities to our clients, please review our Form CRS here.

© 2022 Adviser Investments, LLC. All Rights Reserved.

Adviser Investments' logo is a registered trademark of Adviser Investments, LLC.