{"id":580,"date":"2013-12-02T00:09:08","date_gmt":"2013-12-02T00:09:08","guid":{"rendered":"http:\/\/researchandinvestment.com\/?p=580"},"modified":"2013-12-02T00:09:08","modified_gmt":"2013-12-02T00:09:08","slug":"what-is-contributing-to-the-surge-in-us-corporate-profits","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2013\/12\/02\/what-is-contributing-to-the-surge-in-us-corporate-profits\/","title":{"rendered":"What is contributing to the surge in US corporate profits?"},"content":{"rendered":"<p>Some concern has been expressed in the media about the rising level of margin debt in the US. When expressed as a percentage of GDP, NYSE margin debt is approaching 1999\/2007 levels.<\/p>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter\" title=\"NYSE Margin Debt as percentage of GDP\" alt=\"NYSE Margin Debt as percentage of GDP\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2013\/2013-12-02-margin-debt-gdp-us.png?resize=525%2C321&#038;ssl=1\" width=\"525\" height=\"321\"><\/p>\n<p>But not only margin debt is rising. Market capitalization, while not as fast, is also on the increase.<\/p>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter\" title=\"NYSE Market Cap as percentage of GDP\" alt=\"NYSE Market Cap as percentage of GDP\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2013\/2013-12-02-mkt-cap-gdp-us.png?resize=525%2C321&#038;ssl=1\" width=\"525\" height=\"321\"><\/p>\n<p>And market cap merely reflects the underlying rise in corporate profits, measured here as a percentage of GDP.<\/p>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter\" title=\"Corporate Profits as percentage of GDP\" alt=\"Corporate Profits as percentage of GDP\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2013\/2013-12-02-corporate-profits-gdp.png?resize=525%2C261&#038;ssl=1\" width=\"525\" height=\"261\"><\/p>\n<p>My initial reaction was to attribute the rise to increasing globalization of US corporations, but <a href=\"http:\/\/www.economonitor.com\/rebeccawilder\/2013\/07\/24\/the-trend-in-us-corporate-profits-is-what-you-think-it-is\/\">Rebecca Wilder<\/a> points out that earnings from abroad have scarcely grown. Closer scrutiny of the <a href=\"http:\/\/bea.gov\/newsreleases\/national\/gdp\/2013\/pdf\/gdp1q13_3rd.pdf\">Bureau of Economic Analysis Q1 2013 release<\/a> shows Manufacturing is the top growth sector.<\/p>\n<p>So what is contributing to the surge in corporate profits?<\/p>\n<p>Employee compensation has declined as a percentage of net value added by the corporate sector over the last decade.<\/p>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter\" title=\"Corporate Profits as percentage of GDP\" alt=\"Corporate Profits as percentage of GDP\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2013\/2013-12-02-employee-comp.png?resize=525%2C317&#038;ssl=1\" width=\"525\" height=\"317\"><\/p>\n<p>And there has been a sharp rise in petroleum and coal output, reflected by producers&#8217; annual value shipped ($billion) in the graph below.<\/p>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter\" title=\"Petroleum and Coal shipments\" alt=\"Petroleum and Coal shipments\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2013\/2013-12-02-petroleum.png?resize=525%2C317&#038;ssl=1\" width=\"525\" height=\"317\"><\/p>\n<p>Also, the percentage of corporate profits paid as taxes is shrinking. The following graph compares corporate profits after tax to corporate profits before tax. Less than 20 percent of corporate profits is currently being paid in taxes.<\/p>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter\" title=\"Corporate Profits as percentage of GDP\" alt=\"Corporate Profits as percentage of GDP\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2013\/2013-12-02-corporate-tax.png?resize=525%2C318&#038;ssl=1\" width=\"525\" height=\"318\"><\/p>\n<p>Are these ratios sustainable?<\/p>\n<p>While unemployment remains high, growth in employee compensation is expected to be low. And corporate taxes are likely to remain low until there is a major overhaul of the tax code (don&#8217;t hold your breath). So market capitalization is likely to remain strong for at least the next two to three years.<\/p>\n<h4>Australia<\/h4>\n<p>Australian margin debt is declining steeply as a percentage of GDP.<\/p>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter\" title=\"ASX Margin Debt to GDP\" alt=\"ASX Margin Debt to GDP\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2013\/2013-12-02-margin-debt-gdp-au.png?resize=525%2C321&#038;ssl=1\" width=\"525\" height=\"321\"><\/p>\n<p>ASX market capitalisation as a percentage of GDP is also trending lower. The 2009\/2012 lows should provide a sound base for further gains.<\/p>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter\" title=\"ASX Market Cap to GDP\" alt=\"ASX Market Cap to GDP\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2013\/2013-12-02-mkt-cap-gdp-au.png?resize=525%2C321&#038;ssl=1\" width=\"525\" height=\"321\"><\/p>\n<p>The ASX is muted compared to US markets, but offers value in the long-term.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Some concern has been expressed in the media about the rising level of margin debt in the US. When expressed as a percentage of GDP, NYSE margin debt is approaching 1999\/2007 levels. But not only margin debt is rising. Market capitalization, while not as fast, is also on the increase. And market cap merely reflects &hellip; <\/p>\n<p class=\"link-more\"><a href=\"https:\/\/thepatientinvestor.com\/index.php\/2013\/12\/02\/what-is-contributing-to-the-surge-in-us-corporate-profits\/\" class=\"more-link\">Continue reading<span class=\"screen-reader-text\"> &#8220;What is contributing to the surge in US corporate profits?&#8221;<\/span><\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[18,57],"tags":[831,834,1224,2218,2233,2442,2652],"class_list":["post-580","post","type-post","status-publish","format-standard","hentry","category-market-insights","category-stock-markets","tag-corporate-profits","tag-corporate-taxes","tag-employee-compensation","tag-margin-debt","tag-market-capitalisation","tag-net-value-added","tag-petroleum-and-coal-output"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>What is contributing to the surge in US corporate profits? - the patient investor<\/title>\n<meta name=\"robots\" content=\"noindex, follow\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"What is contributing to the surge in US corporate profits? - the patient investor\" \/>\n<meta property=\"og:description\" content=\"Some concern has been expressed in the media about the rising level of margin debt in the US. 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But this is the new normal, with any relaxation of restrictions likely to lead to fresh outbreaks. Source JHU CSSE Real GDP is expected to contract by 8.0% (year-on-year) in the second quarter, based\u2026","rel":"","context":"In &quot;Deficit Spending &amp; Employment&quot;","block_context":{"text":"Deficit Spending &amp; Employment","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/deficit-spending-employment\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":13396,"url":"https:\/\/thepatientinvestor.com\/index.php\/2016\/05\/25\/stock-buybacks-short-term-gain-long-term-pain\/","url_meta":{"origin":580,"position":1},"title":"Stock buybacks: Short-term gain, long-term pain","author":"ColinTwiggs","date":"May 25, 2016","format":false,"excerpt":"Companies are maintaining stock buybacks and dividends payouts despite falling earnings. Combined buybacks and dividend payouts for S&P 500 corporations exceeded earnings by an estimated $572 billion for 2015. The chart below illustrates how stock buybacks, for S&P 500 stocks, have grown to exceed dividend payouts. The combined figure now\u2026","rel":"","context":"In &quot;Stock Markets&quot;","block_context":{"text":"Stock Markets","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/stock-markets\/"},"img":{"alt_text":"S&P 500 Stock Buybacks and Dividends compared to Earnings","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2016\/2016-05-25-spx-buybacks.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2016\/2016-05-25-spx-buybacks.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2016\/2016-05-25-spx-buybacks.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":26139,"url":"https:\/\/thepatientinvestor.com\/index.php\/2021\/06\/04\/debt-irrational-exuberance-disaster\/","url_meta":{"origin":580,"position":2},"title":"Debt + irrational exuberance = danger","author":"Colin Twiggs","date":"June 4, 2021","format":false,"excerpt":"Three charts from Jesse Felder highlight the sharp rise in leverage, fueling the current stock bubble: 1) Margin debt. 2) Leveraged ETFs. 3) The net position of \u201cnon-reportable\u201d small speculators in S&P 500 futures contracts. The Put\/Call ratio is close to a record low, increasing the risk of a market\u2026","rel":"","context":"In &quot;Banks &amp; Interest Rates&quot;","block_context":{"text":"Banks &amp; Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"Put\/Call Ratio","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2021\/2021-06-04-putcall.png?resize=350%2C200&ssl=1","width":350,"height":200},"classes":[]},{"id":19846,"url":"https:\/\/thepatientinvestor.com\/index.php\/2020\/02\/29\/sp-500-how-low-will-it-go\/","url_meta":{"origin":580,"position":3},"title":"S&#038;P 500: How low will it go?","author":"Colin Twiggs","date":"February 29, 2020","format":false,"excerpt":"The S&P 500 is testing secondary support at 2940, the 2018 high. Descending Trend Index peaks suggest secondary selling pressure at this stage. Support at 2940 is unlikely to hold but investors must be asking: how low will it go? And will we see a V-shaped or an L-shaped recovery?\u2026","rel":"","context":"In &quot;Debt Levels&quot;","block_context":{"text":"Debt Levels","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/debt-levels\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":11979,"url":"https:\/\/thepatientinvestor.com\/index.php\/2015\/06\/25\/are-us-stocks-really-over-valued\/","url_meta":{"origin":580,"position":4},"title":"Are US stocks really over-valued?","author":"ColinTwiggs","date":"June 25, 2015","format":false,"excerpt":"Stock Market Capitalization Let us start with Warren Buffet's favorite market valuation ratio: stock market capitalization to GDP. I have modified this slightly, replacing GDP with GNP, because the former excludes offshore earnings \u2014 a significant factor for multinationals. The ratio of stock market capitalization to GNP now exceeds the\u2026","rel":"","context":"In &quot;Banks &amp; Interest Rates&quot;","block_context":{"text":"Banks &amp; Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"US stock market capitalization to GNP","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2015\/2015-06-25-marketcap-gnp.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2015\/2015-06-25-marketcap-gnp.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2015\/2015-06-25-marketcap-gnp.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":13774,"url":"https:\/\/thepatientinvestor.com\/index.php\/2015\/06\/25\/are-us-stocks-really-over-valued-2\/","url_meta":{"origin":580,"position":5},"title":"Are US stocks really over-valued?","author":"ColinTwiggs","date":"June 25, 2015","format":false,"excerpt":"Let us start with Warren Buffet's favorite market valuation ratio: stock market capitalization to GDP. I have modified this slightly, replacing GDP with GNP, because the former excludes offshore earnings \u2014 a significant factor for multinationals. The ratio of stock market capitalization to GNP now exceeds the highs of 2005\/2006,\u2026","rel":"","context":"In &quot;Market Insights&quot;","block_context":{"text":"Market Insights","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/market-insights\/"},"img":{"alt_text":"US stock market capitalization to GNP","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2015\/2015-06-25-marketcap-gnp.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2015\/2015-06-25-marketcap-gnp.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2015\/2015-06-25-marketcap-gnp.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]}],"_links":{"self":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/580","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/comments?post=580"}],"version-history":[{"count":0,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/580\/revisions"}],"wp:attachment":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/media?parent=580"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/categories?post=580"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/tags?post=580"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}