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Record Corporate Profits

Corporate profits have been on a fairly steady incline since 2009.  And they rose 18% to a record high in the third quarter this year.

corpprofits12-10-12

After-tax corporate profits accounted for 11% of the economy’s growth…the highest percentage in history…well above the average 8% normally seen during times of expansion.  And very well above the 4.6% they fell to during the recession.

But record profits aren’t free.  As profits (red line below) got bigger, wages (blue line below) were squeezed.  Wages now account for a record low 43.5% of GDP.  That makes sense, since there is always a tension between profits and labor costs.  But that means that as far as the economy goes, it’s kind of a zero-sum game.

profitswages12-10-12

But it’s not a zero-sum game to the sector drawing in the most profit.  And all, literally all, of the growth in profits in the third quarter came from one place: the financial sector.  Profits at financial corporations rose $71.3 billion for the third quarter…without those gains, non-financial profits fell $1 billion.  But that’s nothing new.  Over time, the financial sector has proven itself to be pretty good at eating up an increasingly bigger chunk of profits.

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