Peak corporate profits should lead, under normal circumstances, to more hiring and Capex spending. However, we are not seeing enough of either.

Will the corporate version of the Paradox of Thrift become a self-fulfilling prophesy?


Source: BLS, FactSet, J.P. Morgan Asset Management.
Data reflect most recently available as of 6/30/11.

Source: JP Morgan funds

Category: Data Analysis, Earnings

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

14 Responses to “Are We Nearing Peak Corporate Profits ?”

  1. ga082003 says:

    Chart: Swelling debt is really the problem world over

  2. wally says:

    The problem is that this recovery is missing one leg… construction is still in a depression. That cuts out a certain amount of employment, consumer spending and materials demand that would normally be in place. If construction were at ‘normal’ levels, a lot of the apparent problems with the current weak recovery would be gone.

  3. Petey Wheatstraw says:

    Hell, I don’t think that corporate profits and/or cash are/is enough to offset corporate debt, in the first place (and thrift, in the form of austerity, for the Great American Consumer/Taxpayer, will certainly not restore corporate balance sheets or government revenue). We’re going to be cashed-out on.


    It also has a crushed spine (manufacturing) and a coronary embolism (money hoarded and blocked from circulation).

  4. Lewis says:

    I don’t know, I’d like to see this reconciled this ratio with the trend of more globalized big caps before juimping to conclusions… Seems like a big contributing factor:

  5. ashpelham2 says:

    The real paradox is that modern efficiencies mean that less people are needed to do any given job, while more people are being born by the second. And while we have a large retiring segment of our own population, job creation will continue to fall well short of gains in those seeking work. I’m not even sure how we are treading water right now.

  6. TechnicalFundamental says:

    I think corps will buy back shares to pop-up EPS

  7. dead hobo says:

    BR asked:

    Will the corporate version of the Paradox of Thrift become a self-fulfilling prophesy?

    Over the long run – ABSOLUTELY NO!!!. Over the short run – maybe a little, but only under protest. The time frame depends on the patience of the common voter. Once people decide the sociopathic defectives currently in power in both government and finance have screwed around with people long enough, they will rise and take action. Smart crooks will stay under the radar in this revolution and plant seeds for the next financial / credit bubble, but the current crooks will be put into bankruptcy and public humiliation.

    There will be lots of default on sovereign debt. The first couple of times it will be shocking. The rest of the time it will be like pitchforks and torches outside the castle of Dr Frankenstein. Then comes the reconstruction.

    The nimble investor will profit from the volatility. This will not be an overnight process, but it is certain.

  8. DeDude says:

    With todays accounting rules there is no limit to how profitable a company can be.

  9. drewburn says:

    I work at a small manufacturing company in Michigan. Though we have grown very little in recent years, and are down quite a bit from the peak in 07-08, we are seeing a lot of interest in new business. Also, the truck traffic on I-94 between Chicago and Detroit if fairly brutal (heavy). Someone is doing biz; at least it suggests there will be no double dip IMHO.

  10. drewburn says:

    That’s not to say S&P profits haven’t peaked. Certainly in the financial sector they have. Probably in the consumer sector too. If the recovery holds, likely commodity inflation does too. I also suspect, from my little perch in mid-America that there are a lot of people who will not be lured back into the workforce without significant inducement. I’ve seen it; young people who refuse second shift work and prefer to stay with temp firms. It’s interesting. I’m not sure a “good” recovery will happen without “real” inflation. Employers may have to pay up. Oh, and I’m seeing job signs in fast food joints. There may be a lot of people out there who are more willing to muddle through than take a low paying job. Maybe the termination of unemployment benefits will change this……….maybe not……….

  11. There is no such thing as a ‘paradox of thrift’. Friedrich von Hayek successfully refuted the notion in 1928, in his brilliant dissection of the theory cooked up by Foster and Catchings, two in a long line of inflationist cranks that preceded Keynes and whom he got most of his misguided ideas from.
    It is precisely as Bastiat said: a good economist must not only consider what is ‘easily seen’ on the surface – he must also consider what is not immediately seen.
    Mind, I’m not disagreeing with the idea that corporate profits and profit margins are probably peaking here.My comment only refers to the alleged existence of a ‘paradox of thrift’.

  12. [...] the profit picture. How much will a slowing economy or recession impact profits, which as we discussed yesterday, appear to be nearing a peak? (Former Labor Secretary Robert Reich correctly noted that “The [...]

  13. [...] I’m bringing it up because I saw some interesting charts yesterday (tip of the hat to Barry Ri…. If you didn’t know, S&P 500 companies are actually doing quite well in terms of earnings [...]

  14. Bentrider-MI says:

    Remember, in August – the last month of summer here in a relatively unknown vacation paradise – I simply check you email summary and the same on the other blogs I follow, including Daily Kos, and then either go out to ride my recumbent on one of 13,000 miles of trails (the most in the nation) or if it is after I get back I do it and go to bed. I never read too much into the volatility of the markets in August – it’s the biggest vacation month and the volume is usually low, especially if we have a way to differentiate between human and computer trades. As an investor who believes in buying quality dividend paying stocks and never selling into a panicked market, instead investing for the long term I have always done very well. Now I’m moving a larger portion of my money into mutual funds since they use computer high speed trading that I cannot match. I wish the SEC would ban computer trading.