corporate profits

The latest after-tax corporate profits reported in the second quarter of 2018 are at a record high. Meanwhile, nearly half of the country struggles to pay for basic necessities.

As the Wall Street Journal reported this week, corporate profits are up 16.1 percent when compared to the second quarter of 2017, which is the largest year-to-year gain since 2012. While this gain is impressive, it comes in the midst of a bull market that’s been rallying for nine consecutive years. MarketWatch pointed out that the stock market has remained strong despite multiple obstacles, like President Trump’s trade war with China, and speculation that the Federal Reserve may raise interest rates.

However, despite how well investors have been faring over the last decade, those gains have not been shared with the vast majority of American workers. The latest data compiled by the St. Louis Federal Reserve shows that while corporate profits have been steadily rising since the Great Recession of the late 2000s, workers’ share of those profits is still below recession levels.

corporate profits
After-tax corporate profits, 1947-present (Chart by St. Louis Fed)
corporate profits
Workers’ share of corporate profits, 1947-present (Chart by St. Louis Fed)

The fact that corporate profits are so high may be precisely because wages for workers have been relatively stagnant for decades. The Urban Institute published a report earlier this week that found that of the 7,500 Americans it surveyed, approximately 40 percent were unable to afford basic necessities, like groceries, rent, and basic healthcare. The Los Angeles Times broke down the study’s astonishing findings, including how nearly one in four Americans struggle with food insecurity:

The stats become more troubling the deeper you drill down. More than 35% of families with at least one working adult reported difficulty meeting at least one basic need last year.

Almost a quarter of Americans experienced food insecurity, which is to say they didn’t always know if they’d be able to eat if they were hungry.

A staggering 18% faced issues paying medical bills, and nearly as large a percentage reported skipping treatment for an ailment because they couldn’t afford it.

As Grit Post reported last month, stagnant wages are proving to be the key driver between the relative prosperity of the baby boomer generation and the precarious financial situation many in the millennial generation currently face. U.S. Census data shows that for Americans between 25 and 34, median income stayed relatively flat at $34,000/year between 1977 and 2016, even though the cost of education nearly tripled, along with median debt levels. When adjusted for inflation, $34,000 in January 1977 amounts to $137,694 in 2016 dollars.

It doesn’t take a math whiz to figure out that by keeping workers’ pay extremely low, corporate profits can stay high and continue to soar. However, stagnant wages will eventually come home to roost when corporations realize that workers won’t give them money if forced to choose between basic living expenses like food and shelter and buying their products. While the University of Michigan’s consumer sentiment index ranked at 96.2 in August, the Wall Street Journal grimly noted that this kind of confidence usually comes on the eve of a recession.

 

Tom Cahill is a contributor for Grit Post who covers political and economic news. He lives in Bend, Oregon. Send him an email at tom DOT v DOT cahill AT gmail DOT com.

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