Thursday, March 19, 2009

Corporate Profits and Recessions

In a capitalistic system, simplistically speaking, there is not going to be much hiring going on without corporate profits. Looking at their trends is a good way to forecast recessions and recoveries. The last four major recessions were all proceeded by drops in corporate profits, from different sectors of the economy.

Real corporate profits fell 17 % in the '73-'75 recession, 35 % through the late 70's to early 80's, 9 % a decade later, and 20 % during the late 90's through 2001. As of the BEA's last data, rather out of date now (through 3rd quarter 2008), profits had already fallen 16 % from their peak in the 3rd quarter of 2006. The severity of the decline should be even more striking once 4th quarter data is out.

As for the Great Depression, profits fell over 100 % from 1929-1333, and 29 % from 1929-1930, the earliest years available.


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