If you are obsessed with the Fed’s balance sheet, Congress, Nouriel Roubini, or any of the many other doomsayers, you might want to print out this chart of corporate profits to refer to from time to time. Corporate profits continue to climb.
Since this chart is done on a logarithmic scale, it suggests that corporate profits are rising at a pretty steady constant percentage rate. I’m sure the composition of corporate profits has changed—which companies are producing them—over time, but American business seems to be remarkably resilient.
Source: St. Louis Fed (click on image to enlarge)
There have been plenty of periods where corporate profits have declined or been stagnant. There have been a few periods where corporate profits grew at sustained high rates. Both have tended to regress toward the mean. If you take out all of the zigs and zags, you can see that corporate profits have continued to grow at a pretty steady underlying rate. There’s lots of year-to-year variability, but it’s a somewhat more hopeful view than a constant “sky is falling” outlook.
Keep in mind that when you buy stock, you are buying a share of the corporate profits too. If corporate profits continue to rise over time, share prices should participate as well.
In the long run, the optimists tend to win.
