The Profit-Free Economy

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government figures indicate – once favorable tax treatments are removed – most corporations struggle to make profits

American companies are picking up a nasty habit of not making money. The Bureau of Economic Analysis (or BEA) announced last month, that growth in quarterly corporate profits slowed from a blistering 10.5 percent in the second quarter of 2021, to a more moderate 4.3 percent for the third. That was after a tough 2020, when profits flatly contracted by about 5.2 percent for the year. 2019 profit growth was 2.7 percent. That was inline with the overall inflation rate, at the time. 

However, the BEA made it clear such profits come with baggage.

Apparently, over the past several years, regulators have handed corporations a basket of tax-reducing accounting tools; Depreciation was accelerated. So-called tax ceilings were made more favorable. Tax relief bonuses were issued. When such generous tax treatments are backed out of the profit figures, the BEA estimates that corporations have been flatly losing money starting all the way back in 2019. And probably for far longer. 

BEA data indicates that when tax effect like depreciation, are removed, corporate profits are hard to come by.

Public markets quietly acknowledge how profit-challenged most corporations are. As far as we know, only Microsoft (MSFT) and Johnson & Johnson (JNJ) currently earn a legit “AAA” credit rating from both rating agencies Moody’s and S&P. 

That means, that out of the roughly 32.5 million businesses that the U.S. Census says exist, only 2 companies make enough so their investors can be reasonably certain they will get their money back.

Making money has certainly never been easy. But has it ever been this hard?