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A Bad Decade for Nonfinancial Profits


I continue on my recent task of abusing the decade from 1997-2007. The question is—how much of corporate profit growth during this decade was driven by the financial sector? The answer is: Almost all of it.

Take a look at this chart.

The top line is nonfinancial corporate profits, adjusted for inflation (in 1997 dollars). This number is ‘after-tax profits from current production’ as calculated by the Bureau of Economic Analysis (they call it “Profits after tax with IVA and CCAdj”—don’t ask). It does not include write-offs, and it adjusts for various distortions imposed by the tax code. That is, it’s supposed to be the best economic measure of profits.

Based on this measure, you can see that 1987-97 was a good decade for nonfinancial corporations. Their real profits rose a lot.

But the decade 1997-2007 was weak, profit-wise. Real nonfinancial corporate profits gyrate up and down, but end up in roughly the same place—only 6% higher in 2007 than they were in 1997.

Here’s another way of getting at the same point. This table shows the real profits of both nonfinancial and financial corporations in 1997. It also shows the average profits over the next ten years, measured in 1997 dollars. For nonfinancial corporations, the decade from 1998-2007 was worse, on average, than 1997.

Two caveats here. First, there are quite a few different profit measures…some of them give different answers. Second, and more important, these figures measures “domestic” profits, which includes exports from U.S. production but does not include manufacturing and other operations overseas. It may be that nonfinancial corporations had profitable plants overseas—but that does not take away from the point that the decade 1997-2007 was a bad one for the U.S.

The bottom line on 97-2007: Very little or no real wage growth for most Americans, very little real profit growth for the domestic operations of nonfinancial corporations.


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