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November 29, 2011

Corporate profits keep heading upward

In his latest dispatch to clients (no link) economist Ed Yardeni says:

US CORPORATE PROFITS: The corporate profits data released last week for the third quarter along with GDP in the National Income & Product Accounts (NIPA) confirm the remarkable rebound that's been evident in the S&P 500 earnings since early 2009. Profits' share of total National Income (NI) typically increases during economic recoveries. However, it has snapped back much faster than in the past, surpassing previous cyclical peaks. It is unlikely to rise much higher in 2012. However, profits may continue to rise along with National Income next year.

What about labor's share of NI? It's been going down for many years. The share of wages and salaries in NI fell below 50% for the first time on record during Q2-2010.

However, he adds, personal income has held up fairly well thanks to social payments such as unemployment insurance, Social Security etc.

Posted by Jay Hancock at 10:39 AM | | Comments (2)


And the only thing that will be going up is executive wages and bonuses along with a few more perks. Will investment in new products and technologies rise? Will enhancements to existing products be created? As America falls further behind our counterparts in Europe and Asia is communication technologies, credit processing, enviro-friendly technologies; our over-paid executives sit on billions waiting for Congress to grant them tax-breaks and monopolies prior to investing and creating jobs. Most American CEOs are mediocre; the exceptions are rare.

"But the rate of profit does not, like rent and wages, rise with the prosperity and fall with the declension of society. On the contrary, it is naturally low in rich, and high in poor countries, and it is always highest in the countries which are going fastest to ruin."-Adam Smith, The Wealth of Nations, conclusion of Chapter XI, Book I.

Profit is inversely proportional to competition. Competition is directly proportional to the wealth of a nation. Ergo, profit is inversely proportional to the wealth of a nation. They don't teach that on CNBC or Fox News.

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About Jay Hancock
Jay Hancock has been a financial columnist for The Baltimore Sun since 2001. He has also been The Baltimore Sun's diplomatic correspondent in Washington and its chief economics writer. Before moving to Baltimore in 1994 he worked for The Virginian-Pilot of Norfolk and The Daily Press of Newport News.

His columns appear Tuesdays and Sundays.

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