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March 19, 2007

Corporate profits

Corporate profits are up -- way up -- over the past couple of years. At the same time, the share of national income going to workers has fallen. But N.C. State University's Mike Walden says it's not a new trend.

"I know this gets a lot of news and headlines, but we see corporate profits really ebb and flow -– that is, rise and fall with the business cycle. We see them go down as a percent of the economy during recessions, then we see corporate profits go up during expansions," says Dr. Walden, a professor of agricultural and resource economics. "And we’ve seen that happen in this business cycle.

"We had a recession in the early part of this decade. Corporate profits were down. Now they are up as we move into the recovery," he says. "In fact, corporate profits were only 8 percent of national income five years ago during a recession. Now they are up to 12 percent.

"Between the period 1940 to 1970, corporate profits averaged 14 percent. So we are really below that right now," Walden concludes. "So you really need to look at corporate profits over the long term to get a gauge as to whether they are high or low."

Posted by deeshore at March 19, 2007 08:17 AM