Main takeaways:
  • After tax profits are roughly flat at $1.5tn (since 2012).
  • (Net) dividends paid to other sectors is close to its historical average (as a share of profits).
  • Corporate net cash flow has increased recently (from $2tn mid-2013 to $2.2tn).
  • The profit measure more closely associated with S&P500 reported earnings ticked down in 3Q15, but is up by 4% since last year.

Let's take a look at what is happening with US corporate profits. But before, allow for a brief digression on what is and what is not calculated in the US National Accounts statistics.

BEA's main measure of corporate profits is profits from current production. It provides a comprehensive and consistent economic measure of the income earned by all US corporations. It is unaffected by changes in tax laws, and it is adjusted for nonreported and misreported income.

Profits from current production is derived as the sum of (a) profits before tax ("book profits", based on tax-returns provided by the IRS; financial-accounting information is used for the most recent periods) , (b) inventory valuation adjustment (IVA), and (c) capital consumption adjustment (CCAdj).

IVA: gains or losses resulting from inventory withdrawals are not considered income from current production. The IVA converts business-accounting valuation of withdrawals from inventory to a current-cost basis by removing the capital gain or loss element that results from valuing these withdrawals at prices of earlier periods.

CCAdj: converts valuations of depreciation (based on tax code parameters) to valuations that are based on empirically based depreciation patterns, and convert the measures of depreciation to a current-cost basis by removing the capital gain or loss that arises from valuing the depreciation of fixed assets at the prices of earlier periods.

Profits from current production can be "national" (including net profits / transfers "originating in the rest of the world") and "domestic". The profits component of domestic income excludes the income earned abroad by US corporations and includes the income earned in the US by foreign residents.

From this digression I return with charts to illustrate the above mentioned components.

Total profits from current production currently at just above $2tn.

Below total profits from current production before and after taxes.

Out of the $1.5tn in after tax profits, 55% 57.5% is dividends and 45% 42.5% ($700bn $600bn) is saved.

It is also possible to calculate cash flow -- which is undistributed profits puls depreciation less (net) transfers. It is a measure of internal funds available for investment.

The national accounts also provide a measure of profits after tax without IVA and CCAdj. This is the measure often used in comparisons with the S&P measures of reported earnings. It ticked down in Q3 15 but the one-year trend is still up.