Wednesday, November 23, 2011

Corporate Profits vs. Personal Income

Stagnant wages and outsourced production (reduced expenses for corporations - higher unemployment / underemployment for individuals), combined with cheap financing (lower interest payments for corporations - lower income on savings for individuals) have fed record corporate profits, while personal income slowly rebounds (and remains below pre-crisis levels).

Another way to view the same data is to compare real corporate profits (still the red line) with the difference between real GDP growth and real personal income. What we see is that when real GDP grows faster than real personal income, more of national income makes its way into corporate bottom lines.

What this misses is that for corporate income to continue to grow either:
  • National income needs to grow
  • Corporations need to grab an even larger slice of national income from individuals
Both of which will be much tougher on a going forward basis (the former a good thing, the latter not so much).

Source: BEA


  1. [Typo in the Post: "former"/"latter" language doesn't map to the bullet points at the end (I'm assuming)]

    There is a third option: U.S. Corporations grab an even larger slice of increasing global income of individuals.

    New global revenue (sales) and expense (employment, vendors) locations attenuate the connection between US Corporate profits and US Individual income.

  2. Whoops... yes, I didn't mean that economic growth was a bad thing.

    My guess is the third option would fit into the U.S. growth scenario (if the U.S. countries are actually involved in the growth). If not, my pessimistic view is that global earnings are more likely to make their way to the corporations domiciled in the countries that provide the underlying growth.