HomoEconomus

 

The chart above illustrates the relationship of U.S. corporate profits (after tax) to U.S. gross domestic product. While it is clear that the U.S. economy has enjoyed over the past few years a period of record corporate profitability relative to GDP, it is equally clear that such levels have historically been unsustainable. Indeed, the estimated figure for 2007Q4 is a sign that the good times might be coming to an abrupt end.

(The estimate is based on estimated S&P 500 operating earnings from Standard & Poor's, as of Feb. 29; and estimated GDP from the Department of Commerce.)

While housing is weighing on the consumer, productivity is declining, and the job market is showing signs of weakness. Falling profitability relative to GDP -- especially as GDP slows -- will most certainly put added pressure on the consumer through further job cuts.

Final GDP figures are due March 27, including corporate profitability figures.