Sharp spikes in the US Industrial Commodities PPI (producer price index) often precede a drop in Corporate Profits (expressed below as a ratio to GDP). And sharp falls in the PPI tend to precipitate a surge in profits.
The 5-year chart above shows PPI growth close to zero since 2012. With wages, raw material costs and interest rates near long-term lows, there is little wonder that corporate profits have surged. The question is: how long will the three remain low? That depends on how fast the global economy recovers. And how long rising demand (from the recovery) is able to withstand rising input costs.
For the chartists: A Long-term View
A long-term view of Corporate Profits/GDP compared to Industrial Commodities PPI shows the relationship is not a perfect inverse, but profits clearly tend to run counter to the rate of PPI growth.
