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Corporate America’s 30-Year Profitability Bonanza May Be Over
Over the past 30 years, S&P 500 profit margins more than doubled, from 5% to 12%.
In layman's terms, corporate America is more than twice as profitable today as it was in 1990.
The expansion of corporate profitability during the last three decades makes for a stark juxtaposition with the two preceding decades, when margins actually compressed.
It's no coincidence that we can date the onset of America's profit renaissance to the rise of shareholder capitalism and the dawn of the hyper-glob
the last line in this article is all that matters. Anyone who has worked in any environment knows there are still plenty of inefficiencies in any organization. be it in the design, production, supply chain, marketing, or any other department. One of the reasons that profits keep increasing is that businesses have better metrics on their processes and are learning how to use them better and better over time. AI is only going to accelerate this. The big will get bigger and the rich will get richer. They have the best talent and resources to exploit the new technologies.
I agree Michael. It’s so easy to look at these statistics in a narrow context and then fail to identify underlying reasons for margin expansion and ignore other significant trends like AI, that will have a dramatic impact on margins.
You mentioned falling rates- I think this is very important to the story- it has resulted in more leveraged companies and larger public debt….To me this signals behavioral change as rates rise…
Doesn’t the US tax environment also play a part?
Reagan for 2 terms and then Bush, Clinton profited from both globalization and the internet, then Bush Jr’s 2 terms clearly juiced things (2 wars and deregulation inevitably) leading to the GFC. Obama did not rock the corporate boat and Trump infamously goosed corporates again.
I don’t actually believe the voters in every case were saying “Yes make corporations richer and bigger”.
Replying to myself: it’s only very recently that the international “irish sandwich” and global tax rate showed up – for decades multi-nationals have structured themselves out of taxes while simultaneously benefiting from US workers, markets, courts, banks, hospitals, schools, etc
Great points there.
The voters were saying “those poor deserve to be poor” and/or “I don’t like black and brown people overmuch” and the GOP managed to say “yes ; and let’s make corporations richer and bigger” while the Dems were saying “no, no, no, you’re wrong, those poor deserve help and Black and brown people should matter too”.
You can see who won in the graphs provided by our host…
There was some pushback from populist voices on the left and on the right as well. But the whole rightwing propaganda machine (Americans for Prosperity, ALEC and such) were able to get any criticism dismissed as socialist trojan horses.
In retrospect, one such voice, Ross Perot, looks to have been rather prescient, don’t you think?
“We have got to stop sending jobs overseas. It’s pretty simple: If you’re paying $12, $13, $14 an hour for factory workers and you can move your factory South of the border, pay a dollar an hour for labor, … have no health care—that’s the most expensive single element in making a car— have no environmental controls, no pollution controls and no retirement, and you don’t care about anything but making money, there will be a giant sucking sound going south.
... when [Mexico's] jobs come up from a dollar an hour to six dollars an hour, and ours go down to six dollars an hour, and then it's leveled again. But in the meantime, you've wrecked the country with these kinds of deals."
Were the invasions of Iraq and Afghanistan profitable to corporate America? I am confident Desert Storm was. We will not being doing wars like that anymore.
Since Perot was mentioned, 30- years later Perot’s instincts and initiatives may end up putting him in saint territory, for a couple hundred thousand forgotten and abandoned sarin poisoned Desert Storm veterans.
Over the last 30 years our sourcing of goods from China, other SE Asia, etc. has undoubtedly contributed to margin expansion. No matter the politics, companies that have benefited most from these cheaper supply chains will not give up those fat margins easily. I’m going out to lunch today in a beautifully made, $45 dress shirt from Vietnam. Others like it can go for $220. Not for me.