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.
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.
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.