Sunday, July 17, 2011

Gosh Golly Darn

The subject of the July 11 report is corporate profits, in particular, the pre-tax profit margins of the S&P 500, the 500 largest publicly-traded companies based in the U.S. Those profit margins, you’ll be glad to know, are close to record highs, nearing 13 percent of company revenues - their highest levels since the mid-1960s. And since medical costs are far higher today than they were back then, how, you may wonder, have those companies climbed back to the profit margins of those earlier, lest costly, more innocent times?

To answer that question, [J.P. Morgan Chase Chief Investment Officer Michael] Cembalest looked at the rise in profit margins “from peak to peak” - that is, from their highpoint in 2000, just before the dot-com bust, to their highpoint in 2007, just before the financial crisis. In those seven years, profit margins rose by roughly 1.3 percent - from just under 11 percent of the S&P 500’s revenues to just over 12 percent. (Today, after dipping in the months after the crash, they’re up to near 13 percent, as we noted above.)

Why did they increase from 2000 to 2007? “There are a lot of moving parts in the margin equation,” Cembalest notes, but “reductions in wages and benefits explain the majority of the net improvement in margins."
~ from No Class Warfare Here! by Harold Meyerson ~
Gosh! Golly! Darn! Who would have ever thought there was a connection between burgeoning corporate profits and reduced wages and benefits for their workers!?

Such a non-earth-shattering revelation.

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