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As I’ve previously written, most households and individuals have been given a raw deal for the last 40 years. Most people haven’t been able to keep up with the costs of living, particularly higher education, healthcare, and housing. U.S. corporate profits after tax grew at a roughly equivalent rate as disposable personal income (personal income after taxes) up to the early 1980s.
Growth Of Corporate Profits And Personal Income
Below is a reminder graph constructed at the Federal Reserve Bank of St. Louis’ Federal Reserve Economic Data (FRED) site.
Corporate profits after taxes and personal income after taxes, indexed to show comparative growth.
The lines are indexed to show equivalent growth, even if the numbers are disproportionate. From the 1950s to 1980, the two lines of money after taxes — personal and corporate — held together well. Then they split, with corporate profit growth falling behind during a difficult period in the economy, with huge inflation and interest rates followed by a second turbulent time. In the early 2000s, though, corporate profits began to take off for the next 25 years.
However, even the 2000s didn’t match what happened starting with the Covid-19 pandemic, as Ricardo Marto of the St. Louis Fed recently wrote about. Marto used various data from the Bureau of Economic Analysis, including quarterly data on corporate profits as well as the U.S. national income, which let him consider the percentage of national income that pre-tax corporate profits represented. He used taxes before corporate income, which differs from my comparison with personal income after taxes.
Corporate Profit Growth After The Pandemic
Here is his graph from the FRED site.
U.S. corporate profits in dollar size and as a share of national income.
The shorter timespan that he covered helps make more obvious the increase in corporate profits following the pandemic.
There is a sharp drop during the pandemic recession. But then things take off for corporations. In 2010, corporate profits were under $2 trillion annually. By the end of 2024 they were $4 trillion, so more than double. But according to the Bureau of Labor Statistics CPI inflation calculator, a dollar in 2010 had the same buying power as $1.44 at the end of 2024. Corporate profits seriously outpaced inflation.
The share of national income that corporate profits composed averaged 13.9% between 2010 and 2019. By the end of 2024, they were 16.2%. Employee compensation as a share of national income had been 61.8% during that 2010-to-2019 period. By the end of 2024, it was 61.6%.
Industries That Saw The Biggest Increases In Profitability
The jump in profitability primarily came from a few industries (listed from higher to lower with the increase in profits): retail trade ($153 billion to $314 billion), construction ($68 billion to $168 billion), wholesale trades ($132 billion to $247 billion), manufacturing of durable goods (numbers not provided), and healthcare and social assistance (numbers not provided). They were 73% of the post-pandemic profit increase. Here is the graph:
Industrial sector growth in corporate profits as a share of national income.
So, even as costs had exploded due to reduced availability of goods from 2020 through 2023, companies managed to charge enough over their increased costs to become much more profitable.
Where did those extra profits go? About 76% were increases in dividends that rewarded shareholders. Another 15% were retained profits. And then 9% went to increased corporate income taxes.