Monday, May 16, 2011

Real Profits of U.S. Manufacturing Corporations Have Recovered To All-Time Record-High Levels

Mike Mandel has a post "New Manufacturing Data Show Weaker Factory Recovery, Deeper Recession," where he presents some new Census data on factory shipments of manufactured goods through the first quarter of 2011. Mike concludes that "real shipments are still 15% below their peak, and asks "Now that hardly looks like a recovery at all, does it?"

But Census also reported recently on U.S. manufacturing after-tax profits (see CD post here), and those data show that real manufacturing profits have completely recovered from the recession, and reached an all-time high in the fourth quarter of last year (see chart above, adjustment for inflation made using the Business Sector Deflator).  Fourth quarter 2010 profits of $135.5 billion were 10% above the pre-recession level of $122.9 billion in the fourth quarter of 2007.  

Bottom Line: Due to cost savings, improved productivity and increased efficiencies achieved during the last three years, U.S. manufacturing corporations are now more profitable than ever before, and that's part of the reason for all of the "happy talk" about manufacturing's comeback.  In the end, it's profitability that's the most important gauge for the health of a company or industry, not the amount of shipments, output, or employment levels.

For the manufacturing sector to have record-high profits today at a level of output 15% below the peak in 2007 is much better than the reverse - a record level of output with profits 15% below a 2007 peak. With record-high profits, American manufacturing corporations have the resources to make the very investments in research, technology and capital equipment that will allow them to become even more efficient, productive and profitable in the future.  The future of America's manufacturing sector has never looked brighter.  

16 Comments:

At 5/16/2011 1:52 PM, Blogger Benjamin said...

Factories are running at about 75 percent of capacity. Bernanke needs to print a lot more money.

Then manufacturers would make even more money, hire more, and start a virtuous cycle going.

 
At 5/16/2011 2:07 PM, Blogger juandos said...

"But Census also reported recently on U.S. manufacturing profits..."

Well since the Census Department is run from the White House I can't help but wonder if they're not running interference for the job killers at the EPA?

 
At 5/16/2011 2:24 PM, Blogger Paul said...

"Then manufacturers would make even more money, hire more, and start a virtuous cycle going."

Wow, who knew it was that easy! Obviously, no country has tried this before, else there wouldn't be any poverty anywhere.

 
At 5/16/2011 2:42 PM, Blogger Buddy R Pacifico said...

"Then manufacturers would make even more money, hire more, and start a virtuous cycle going."

The manufacturing virtous cycle has a catalyst: U.S. Manufactured Exports.

 
At 5/16/2011 2:56 PM, Blogger Michael Hoff said...

"American manufacturing corporations have the resources to make the very investments in research, technology and capital equipment that will allow them to become even more efficient, productive and profitable in the future."

Or are they going to sit on that cash for fear of what's to come either in the economy as a whole or due to Obamacare? I don't ask that because I believe it, only because I'm wonderin'.

 
At 5/16/2011 3:18 PM, Blogger Benjamin said...

Paul-

When there is so much slack in the economy, it is that easy. Milton Friedman would tell you that.

It gets trickier when we get up to 95 percent of capacity. we are a long way from there.

Now, more demand will not lead to inflation. Only output growth, Competitive pressures hold down prices.

Econ 101.

 
At 5/16/2011 3:55 PM, Blogger Paul said...

"When there is so much slack in the economy, it is that easy. Milton Friedman would tell you that."

Oh, please. Milton Friedman would've pointed to your boyfriend's insane spending and his war on capitalism as the primary problems. Your boyfriend is cooking up a return to stagflation and a record misery index.

 
At 5/16/2011 4:03 PM, Blogger Paul said...

Benji's economic theories reminded me of this story from The Onion from a few years ago:

Recession-Plagued Nation Demands New Bubble To Invest In

 
At 5/16/2011 4:24 PM, Blogger Benjamin said...

Paul-

I am sorry to deprive you of an "other" for your demented craving for an adversary, but I support Paul Ryan for President (now that my hero Donald Trump has dropped out).

Ryan is to much a GOP trencherman for my liking, but he may be the best candidate for 2012.

I do miss Trump's business sense: He was the only GOP'er to point out we spent $1.5 trillion in Iraq, and got nada.

Ryan is still extolling the virtues of our $3 billion-a-day defense-VA-Homeland Security Rube Goldberg money-eating machine.

But is Ryan better than Obama? Probably.

 
At 5/16/2011 5:24 PM, Blogger Paul said...

Benji,

A)The fact that Trump is your hero speaks volumes.

B)Ryan isn't even running.

C) The media will demonize whoever is the GOP candidate in 2012. You will pick up the signals, repeat their talking points verbatim, and sign back on with your boyfriend.

 
At 5/16/2011 6:36 PM, Blogger Benjamin said...

Sorry to disappoint you again Paul.

If Ryan runs I will vote for him. If Trump had run I would have voted for him.

I would vote for Ron Paul (though he is a lunatic when it come to the Fed).

I will not vote for a militaristic kook-ball, no matter what party they represent. And for some reason, I do not like Mitt Romney, though I cannot put my finger on why. I won't vote for Romney.

 
At 5/16/2011 9:14 PM, Blogger Paul said...

"I will not vote for a militaristic kook-ball, no matter what party they represent."

But socialist community organizer? Hell yah!

 
At 5/17/2011 6:06 AM, Blogger marmico said...

Mandel punks Perry.

 
At 5/17/2011 9:57 AM, Blogger morganovich said...

of course, if we are underestimating inflation, this this "real" number is pure fiction.

the price of our exports were up 9.6% year on year. the price of our imports were up nearly 11%.

yet we deflate our manufactures with some 2% number?

in what ridiculous parallel universe can our imports and exports be up so much in price while our domestic production isn't?

this is just more inflation being mistaken for productivity.

 
At 5/17/2011 10:11 AM, Blogger Buddy R Pacifico said...

marmico states:

"Mandel punks Perry."

From page XIV of the 226 page U.S. 2010 Census publication the Quarterly Report for Manufacturing, Mining, Trade, and Selected Service Industries:

"Consolidation rules. Reporting companies have been instructed to fully consolidate the domestic operations of every company, corporate (including 1120S corporations) and noncorporate, which are taxable under the U.S.
Internal Revenue Code and are owned more than 50 percent by the reporting company and its majority-owned subsideraries. This includes every majority-owned domestic company located within the United States that manufactures, mines, or conducts other business activities with the following exceptions: foreign entities (either corporate or noncorporate), foreign branch operations, and domestic companies primarily engaged in foreign
operations (plants or work forces are located in foreign countries). Subsidiaries created in foreign countries to manufacture and/or sell primarily in foreign markets are not consolidated
."


So, if I understand correctly, foreign earnings are not included.

Note I added bold to the Census background on foreign earning exclusion;

and marmico is very snarky.

 
At 5/21/2011 10:13 PM, Blogger VangelV said...

When you get to write off years of losses it is easy to show a big profit, particularly when the lax accounting rules allow it.

 

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