Profitability Issues

Overall Q3 2023 Corporate Profits Relative To GDP

In the last post (“After Tax Corporate Profits Chart 3rd Quarter 2023”) I displayed, for reference purposes, a long-term chart depicting Corporate Profits After Tax.

There are many ways to view this measure, both on an absolute as well as relative basis.

One relative measure is viewing Corporate Profits as a Percentage of GDP. I feel that this metric is important for a variety of reasons. As well, the measure is important to a variety of parties, including investors, businesses, and government policy makers.

As one can see from the long-term chart below (updated through the third quarter), (After Tax) Corporate Profits as a Percentage of GDP is still at levels that can be seen as historically high. While there are many reasons as to why this is so, from a going-forward standpoint I think it is important to recognize both that such a notable condition exists, as well as contemplate and/or plan for such factors and conditions that would come about if (and in my opinion “when”) a more historically “normal” ratio of Corporate Profits as a Percentage of GDP occurs. This topic can be very complex in nature, and depends upon myriad factors. In my opinion it deserves far greater recognition.

(click on chart to enlarge image)

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RevSD, LLC offers the above data and projections for informational purposes only, and does not necessarily agree with information provided by these outside parties.

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ProfitabilityIssues.com is published by RevSD, LLC (RevSD.com). RevSD, LLC is a management consulting firm and strategic advisory that focuses on the analysis of current and future business conditions, and given these conditions, offers corporations and businesses advice, strategies, and actionable methods on how to optimally increase revenues and profitability.

After-Tax Corporate Profits Chart 3rd Quarter 2023

Today’s (November 29, 2023) GDP release (Q 3 2023, Second Estimate) was accompanied by the Bureau of Economic Analysis (BEA) Corporate Profits report (Preliminary Estimate) for the 3rd Quarter.

Of course, there are many ways to adjust and depict overall Corporate Profits. For reference purposes, here is a chart from the St. Louis Federal Reserve (FRED) showing the Corporate Profits After Tax (without IVA and CCAdj) (last updated November 29, 2023 with a value of $3,029.065 Billion SAAR):

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Here is the Corporate Profits After Tax measure shown on a Percentage Change from a Year Ago perspective (value of .5%):

Corporate Profits After Tax Percent Change From Year Ago

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Corporate Profits After Tax [CP]; U.S. Department of Commerce: Bureau of Economic Analysis; accessed November 29, 2023; https://research.stlouisfed.org/fred2/series/CP

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RevSD, LLC offers the above data and projections for informational purposes only, and does not necessarily agree with information provided by these outside parties.

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Business Inflation Expectations And Wage Change Characteristics

The Federal Reserve Bank of Atlanta publishes a monthly report titled “Business Inflation Expectations” (BIE) that contains statistics from a survey of regional businesses’ views on various factors that impact profitability. These factors include unit costs, unit cost expectations, sales levels, pricing, profit margins, and other factors.

As described on the site:

“Approximately 300 panelists receive the survey each month. Panelists represent businesses of various sizes headquartered within the Sixth District, which encompasses Alabama, Florida, Georgia, and sections of Louisiana, Mississippi, and Tennessee. Panelists range from executives of large corporations to owner-operators of small businesses. The industry composition of the panel roughly reflects the makeup of the national economy. Nevertheless, survey responses are weighted by industry shares of national gross domestic product.”

An excerpt from the November 2023 BIE Survey dated November 15, 2023 (involving 224 firms responding):

Inflation expectations: Firms’ year-ahead inflation expectations remained relatively unchanged at 2.5 percent, on average.
Current economic environment: Firms’ sales levels and profit margins “compared to normal” decreased. Year-over-year unit cost growth remained unchanged at 3.2 percent, on average.
Quarterly question: Firms were asked about factors at work on price changes. Approximately 76 percent of firms expect both labor and nonlabor costs to place upward influence on prices. About 41 percent of firms expect sales levels to exert little or no influence on prices over the next 12 months. Approximately 49 percent of firms expect margin adjustment to have little or no influence on prices over the next 12 months.
Special question: Firms were asked about how wages for low- and high-skilled jobs changed in the past 12 months and how they might change in the next 12 months. They were also asked about supply chain conditions and hiring conditions. A breakdown of the results can be found in the special question section.

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RevSD, LLC offers the above commentary for informational purposes only, and does not necessarily agree with all (or any) of the views expressed by these outside parties.

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ProfitabilityIssues.com is published by RevSD, LLC. RevSD, LLC is a management consulting firm and strategic advisory that focuses on the analysis of current and future business conditions, and given these conditions, offers corporations and businesses advice, strategies, and actionable methods on how to optimally increase revenues and profitability.

S&P500 Earnings Trends – November 2023

S&P500 earnings trends and estimates are a notably important topic, for a variety of reasons, at this point in time.

FactSet publishes a report titled “Earnings Insight” that contains a variety of information including the trends and expectations of S&P500 earnings.

For reference purposes, here are two charts as seen in the “Earnings Insight” report of November 10, 2023:

from page 29:

(click on charts to enlarge images)

from page 30:

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RevSD, LLC offers the above commentary for informational purposes only, and does not necessarily agree with all (or any) of the views expressed by these outside parties.

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S&P500 EPS Estimates For 2023 – 2025 As Of November 10, 2023

As many are aware, Refinitiv publishes earnings estimates for the S&P500.

The following estimates are from Exhibit 24 of the “S &P500 Earnings Scorecard” (pdf) of November 10, 2023, and represent an aggregation of individual S&P500 component “bottom up” analyst forecasts. For reference, the Year 2014 value is $118.78/share; the Year 2015 value is $117.46/share; the Year 2016 value is $118.10/share; the Year 2017 value is $132.00/share; the Year 2018 value is $161.93/share; the Year 2019 value is $162.93/share; the Year 2020 value is $139.72/share; the year 2021 value is $208.12/share; and the year 2022 value is $218.09/share:

Year 2023 estimate:

$220.62/share

Year 2024 estimate:

$245.31/share

Year 2025 estimate:

$275.12/share

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RevSD, LLC offers the above commentary for informational purposes only, and does not necessarily agree with all (or any) of the views expressed by these outside parties.

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