Economic growth in the major capitalist economies may be weak, but corporate profits continue to rise strongly, at least among the largest companies in the US. Corporate earnings figures of the top US companies for the second quarter of 2011 have been coming out over the last couple of weeks. Strong second-quarter earnings from McDonald’s, General Electric and Caterpillar on Friday are just the latest evidence.
The rise in profits has been achieved not by expanding investment or production much but by cutting back on costs (i.e cutting the denominator in Marx’s formula for the rate of profit – see my previous post, The Great Recession and cutting the denominator, 14 July 2011). Companies remain reluctant to spend the $1.9 trillion in cash they’ve accumulated. So US unemployment stays stuck at 9.2% and real wages are falling.
“I’ve never seen labour markets this weak in 35 years of research,” says Andrew Sum, director of the Center for Labor Market Studies at Northeastern University (http://www.clms.neu.edu/publication/documents/Revised_Corporate_Report_May_27th.pdf). According to Sum, wages and salaries accounted for just 1% of the growth in US national income in the first 18 months since the Great Recession officially ended in June 2009. In the same period after the 2001 recession, wages and salaries accounted for 15%; it was 50% after the 1991-92 recession; and 25% after the 1981-82 recession. Corporate profits, by contrast, accounted for an unprecedented 88% of national income during the last 18 months, compared with 53% after the 2001 recession, nothing after the 1991-92 recession and 28% after the 1981-82 recession.
Sum argues that US corporations are expanding overseas, but not so much at home. McDonalds and Caterpillar said overseas sales growth outperformed the US in the April-June quarter. US-based multinational companies have been focused overseas for years: in the 2000s, they added 2.4 million jobs in foreign countries and cut 2.9 million jobs in the United States, according to the US Commerce Department.
In a previous post (see Returning to the long view, 15 June 2011), I argued that, although US corporate profits were still rising and had surpassed their previous peak back in 2007, there were signs that the pace of growth was slowing and that the rate of profit (not the mass) was likely to start to fall back before this year is out. That was based on data provided by the US Bureau of Economic Analysis for the first quarter of 2011. We don’t have the data for the second quarter yet, so I cannot confirm if my forecast is bearing out.
In the meantime, the corporate earnings announcements for the top US companies suggest that the US profits boom is still in place. Indeed, the S&P agency forecast for the earnings of the top 500 companies in Q2’2011 is that it will surpass the earnings reached in Q2’2007, the last peak. But S&P data also show that corporate sales have not returned yet to the peak of mid-2008. So profits are still being achieved by more by reductions in costs than by increased sales revenues.