What’s Driving the Surge in U.S. Corporate Profits?

U.S. corporate profits have risen markedly to near all-time highs since the start of the COVID-19 pandemic, both in nominal terms and as a share of national income. This blog post examines the factors and industries that have driven this surge.

Corporate Profits in National Accounts

I use quarterly data on corporate profits from the U.S. national income and product accounts (NIPA) published by the Bureau of Economic Analysis (BEA). Corporate profits are the second-largest component of U.S. national income after employee compensation, which includes wages and salaries plus employer contributions to pension and insurance plans.National income can be divided into (1) employee compensation, which includes wages and salaries plus employer contributions to pension and insurance plans; (2) proprietors’ income, which reflects the income of the self-employed and unincorporated business owners; (3) rental income from housing, land and natural resources; (4) corporate profits; (5) net interest and miscellaneous payments, i.e., the difference between interest paid and interest received and royalty payments; (6) taxes on production and imports, e.g., excise, property and sales taxes and customs duties; and (7) items smaller in value, such as government subsidies, surplus of government enterprises and business current-transfer payments.

The BEA’s measure of corporate profits consists of net dividends and undistributed profits from current production for all financial and nonfinancial firms required to file federal corporate tax returns.It excludes dividend income, capital gains and losses, and other financial flows and adjustments. It includes profits from domestic industries (i.e., income earned in the U.S. by American and foreign-owned corporations, but not income earned abroad by U.S. corporations) and profits originating in the rest of the world that are received by U.S. residents (i.e., dividends from foreign corporations to U.S. investors and firms). This measure is computed with and without inventory valuation and capital consumption adjustments.The inventory valuation adjustment refers to the exclusion from business income of gains or losses resulting from holding goods in inventory. The capital consumption adjustment amends measures of depreciation for consistent accounting at a historical cost and for current-cost valuation. In what follows, I focus on profits before taxes on corporate income.

Trends in Corporate Profits

The figure below shows the evolution of corporate profits (with inventory valuation and capital consumption adjustments) in trillions of dollars and as a fraction of national income. Corporate profits totaled $4.0 trillion at the end of 2024—more than double what they were in 2010. Despite the spectacular increase in nominal values, corporate profits as a share of national income were stable from 2010 to the start of the COVID-19 pandemic. Profits averaged 13.9% of national income over the 2010-19 period; they were 16.2% of national income as of the last quarter of 2024.

U.S. Corporate Profits and Corporate Profits as a Share of National Income

SOURCES: Bureau of Economic Analysis and author’s calculations.

NOTES: Corporate profits are shown before taxes and with inventory valuation and capital consumption adjustments from the first quarter of 2001 to the last quarter of 2024. Shaded areas indicate recessions.

The surge in corporate profits as a share of national income began in late 2020, mostly at the expense of a decline in net interest and miscellaneous payments on assets (interest paid less interest received and royalty payments) and proprietors’ income (income earned by unincorporated businesses). In contrast, employee compensation as a share of national income marginally decreased. It averaged 61.8% of national income over the 2010-19 period and was 61.6% in the last quarter of 2024.

I now turn to the main components of corporate profits as a fraction of national income. After the beginning of the pandemic, dividends from abroad fell and profits from domestic financial industries (finance, insurance, bank and other holding companies) remained fairly stable, as displayed in the following figure. The recent increase in corporate profits was entirely driven by the real economy. Profits from domestic nonfinancial industries, which averaged 8.1% of national income over the 2010-19 period, rose to 11.2% by the last quarter of 2024.

U.S. Corporate Profits for Domestic Industries and the Rest of the World as a Share of National Income

SOURCES: Bureau of Economic Analysis and author’s calculations.

NOTES: Corporate profits are shown before taxes and with inventory valuation and capital consumption adjustments from the first quarter of 2001 to the last quarter of 2024. Shaded areas indicate recessions.

Which Industries Drove This Increase?

Because inventory valuation and capital consumption adjustments are not widely available at the industry level, I examine the corporate profits of domestic nonfinancial industries without them. Removing inventory valuation and capital consumption adjustments at the aggregate level generally raised U.S. corporate profits by 0.4% of national income over the 2010-19 period. These adjustments were, however, more noticeable over the past two years, suggesting that the revaluation of inventories and depreciation has been larger since the pandemic’s onset.

To assess the role of different industries, I compute their contributions to the increase in profits of domestic nonfinancial industries pre- and post-COVID-19.To be precise, an industry’s pre-COVID-19 profits refer to its average profit as a fraction of national income for the 2010-19 period, while its post-COVID-19 profits refer to the average profit as a fraction of national income for the 2020-23 period. The industry-level data used are at the annual frequency. As the next figure displays, the recent surge in corporate profits was driven by retail and wholesale trade, construction, manufacturing and health care. These sectors accounted for 73% of the postpandemic rise in corporate profits. Profits in the retail trade industry averaged $153 billion pre-COVID-19 and rose to $314 billion post-COVID-19 (or from 1% of national income to 1.5%), while those in the construction and wholesale trade industries climbed from $68 billion to $168 billion (0.4% of national income to 0.8%) and from $132 billion to $247 billion (0.9% of national income to 1.2%), respectively, over the same period.

Sectoral Contributions to the Post-COVID-19 Growth of Domestic Nonfinancial Industry Corporate Profits as a Share of National Income

SOURCES: Bureau of Economic Analysis and author’s calculations.

NOTES: Corporate profits are shown before taxes and without inventory valuation and capital consumption adjustments. Bars represent the contribution to the growth in average corporate profits of domestic nonfinancial industries as a share of national income between the pre-COVID-19 (2010-19) period and post-COVID-19 (2020-23) period.

Profits go up when firms’ revenue grows faster than the costs incurred to produce the goods and services they sell. The COVID-19 pandemic accelerated the transition toward the digital economy, which likely helped firms, particularly those in the retail and wholesale trade industries, produce more with fewer resources. This would translate into an increase in profits.

Where Are Corporate Profits Going?

Corporate profits can be distributed to shareholders in the form of dividends or to the government as taxes on corporate income, or else retained as undistributed profits. The latter can be thought of as a form of corporate savings, allowing firms to invest in longer-term investment projects.

The figure below shows how net dividends, corporate income taxes and undistributed profits contributed to the rise in domestic nonfinancial industries’ corporate profits after the COVID-19 pandemic relative to the 2010-19 period.See Endnote 4 for more details about how industry profits were calculated and how the pre- and post-COVID-19 periods were defined. About 76% of the growth in corporate profits earned by domestic nonfinancial industries was driven by an increase in the dividends rewarding shareholders. Undistributed profits and corporate income taxes accounted for 15% and 9%, respectively, of domestic nonfinancial industries’ corporate profit growth.

Within-Sector Contributions to the Post-COVID-19 Growth of Domestic Nonfinancial Industry Corporate Profits as a Share of National Income

SOURCES: Bureau of Economic Analysis and author’s calculations.

NOTES: Corporate profits are shown before taxes and without inventory valuation and capital consumption adjustments. Bars represent the contribution to the growth in average corporate profits of domestic nonfinancial industries as a share of national income between the pre-COVID-19 (2010-19) period and post-COVID-19 (2020-23) period.

Zooming in at the industry level shows more heterogeneity. Dividends to shareholders were more significant in nondurable goods manufacturing; retail trade; professional, scientific and technical services; and wholesale trade. These industries explained more than half of the contribution of net dividends to the post-COVID-19 increase in corporate profits. Retail trade, construction and wholesale trade were responsible for most of the contributions to corporate savings.

Takeaways

Corporate profits have been elevated since the onset of the COVID-19 pandemic. As of the last quarter of 2024, they were $4 trillion—2.3 percentage points higher as a fraction of national income than they were prior to the pandemic. The increase was entirely driven by domestic nonfinancial industries. Notably, retail and wholesale trade, construction, manufacturing and health care experienced a marked increase in profitability. Higher corporate profits mostly went to rewarding shareholders via higher dividends.

Notes

1. National income can be divided into (1) employee compensation, which includes wages and salaries plus employer contributions to pension and insurance plans; (2) proprietors’ income, which reflects the income of the self-employed and unincorporated business owners; (3) rental income from housing, land and natural resources; (4) corporate profits; (5) net interest and miscellaneous payments, i.e., the difference between interest paid and interest received and royalty payments; (6) taxes on production and imports, e.g., excise, property and sales taxes and customs duties; and (7) items smaller in value, such as government subsidies, surplus of government enterprises and business current-transfer payments.
2. It excludes dividend income, capital gains and losses, and other financial flows and adjustments.
3. The inventory valuation adjustment refers to the exclusion from business income of gains or losses resulting from holding goods in inventory. The capital consumption adjustment amends measures of depreciation for consistent accounting at a historical cost and for current-cost valuation,
4. To be precise, an industry’s pre-COVID-19 profits refer to its average profit as a fraction of national income for the 2010-19 period, while its post-COVID-19 profits refer to the average profit as a fraction of national income for the 2020-23 period. The industry-level data used are at the annual frequency.
5. See Endnote 4 for more details about how industry profits were calculated and how the pre- and post-COVID-19 periods were defined.