Reserve Bank of Australia
February 2004
Box A: US Corporate Profits
A positive development in the global
economy over the past couple of years has
been the substantial rebound in US
corporate profits. Although interpretation of
earnings data remains difficult, due to
methodolog ical differences in the
construction of the various measures (for
details see Box A, Statement on Monetary
Policy, February 2002), the rebound is
evident in both national accounts and
financial reporting-based estimates.
The national accounting estimate of profits
remains the best available as it is consistent
over time and captures all profits earned by
US companies. After falling 20 per cent in
the four years between September 1997 and
September 2001, national accounts gross
profits rebounded 58 per cent over the two
years to September 2003 (Graph A1). Over
the year to September last year (the most
recent data available) gross profits grew by
25 per cent – a significantly stronger rise than
seen in the recovery from the early-1990s
recession.
As a consequence of this rise, the profit
share of US output has also recovered
(Graph A2). After falling to 7.1 per cent of
GDP in the September quarter of 2001(near
historical lows), the profit share recovered
to 10.1 per cent by the September quarter
2003 – well above the 8.4 per cent average
since 1970.
Graph A2
Corporate Profits
Percentage of GDP
%
%
10
10
Average since 1970
9
9
8
8
7
7
6
1973
1979
1985
1991
1997
6
2003
Source: Bureau of Economic Analysis
Graph A1
Corporate Profits – National Accounts
US$b
US$b
1 100
1 100
900
900
700
700
500
500
300
300
1991
1994
1997
Source: Bureau of Economic Analysis
2000
2003
The strong growth observed in the national
accounting measure of profits has also been
reflected in financial measures of corporate
earnings such as ‘as reported’ earnings and
‘operating’ earnings (Graph A3).
The profits recovery has been driven by
continued strong productivity growth in
conjunction with subdued compensation
growth (due to the weak labour market),
which has seen unit labour costs fall by
5 per cent since June 2001 – the largest fall
on record (Graph A4).
The restoration of the profit share has been
an important factor behind the recovery in
investment spending seen over recent
quarters. R
19
February 2004
Statement on Monetary Policy
Graph A3
Graph A4
US Corporate Earnings
Nominal Unit Labour Costs
1995 = 100
Four-quarter-ended percentage change
Index
Index
200
%
%
10
10
200
‘Operating’
earnings
150
150
100
100
5
5
0
0
‘As reported’
earnings
50
50
0
0
1995
1997
Source: Standard and Poor’s
20
1999
2001
2003
-5
1953
1963
1973
Source: Bureau of Labor Statistics
1983
1993
-5
2003