As inflation rose in the Spring, corporate profits also went up in the US

While most financial types focused on the GDP update that was released last week (decline in Q2 real GDP reduced from -0.9% to -0.6%), I looked at a different stat in that report.

Profits from current production (corporate profits with inventory valuation and capital consumption adjustments) increased $175.2 billion in the second quarter, in contrast to a decrease of $63.8 billion in the first quarter (table 10).

Profits of domestic financial corporations decreased $24.2 billion in the second quarter, compared with a decrease of $51.1 billion in the first quarter. Profits of domestic nonfinancial corporations increased $173.9 billion, in contrast to a decrease of $4.8 billion. Rest-of-the-world profits increased $25.5 billion, in contrast to a decrease of $7.9 billion. In the second quarter, receipts increased $51.1 billion, and payments increased $25.5 billion.

A $175 billion (annual rate) increase in profits? And an 8.1% increase in profit between Q2 2021 and Q2 2022? But I thought all that inflation was holding back companies and cutting into their profits! Are you saying that wasn’t so?

Not at all, which another stat in that report shows. Per-unit corporate profits jumped by 8.9% in Q2, and resumed a climb in profit margins that has happened since the COVID recession of early 2020.

That’s profit above and beyond increases in costs such as labor and materials. The increase in per-unit prices that corporations charged in Q2 was nearly twice as much as the combined cost increase over that same time period.

Which goes back to a theory I have had for quite a while about US inflation. A sizable amount of the increases in prices that consumers have had to pay is due to little more than corporate greed trying to take advantage of higher demand and in taking advantage of the changed circumstances of the post-COVID world we live in.

We need to make sure that some of those changed circumstances aren’t due to a lack of competition and mergers in certain industries. And it also indicates that workers can and should continue to demand more pay. Not just because labor conditions are tight, but because the companies have the higher profit margins that should go back to the workers that help to create those profits.

Keep this one in mind as Labor Day weekend looms.