- by New Deal democrat
Perhaps the most important economic news released so far this week was this morning’s update on Q3 corporate profits. While it is not a good thing for society for profits to outpace wages and salaries on a sustained basis, it is almost always not a good thing for the economy for profits to decline. That’s because when profits decline, one of the first things management thinks about is not hiring, or even laying off, workers.
And this morning’s news on corporate profits was negative. After tax profits were unchanged even without adjusting for inflation or costs in the third quarter (dark blue below). Since unit labor costs increased 0.8% during the quarter (light blue), after adjusting for labor costs (not shown), corporate profits declined:
Only one quarter of course, and on a YoY basis (not shown), profits increased 9.6% vs. unit labor costs’ increase of 3.8%.
This is in accord with third quarter profits as reported to Wall Street, the latest update of which from last week is shown below:
If corporate profits continue to stall for another quarter, and interest rates (especially mortgage rates) remain elevated, this will put downward pressure on the economy in the quarters ahead in 2025.
