We look forward to next week's release of the second quarter's corporate profits data from the Bureau of Economic Analysis (BEA), which will contain the BEA's initial estimates. Last month, the BEA's updated release of the National Income and Product Accounts (NIPA) included some significant downward revisions to corporate profit margins over the previous five years (chart 1). The news seems to have been largely ignored by financial market participants, who, as is usually the case, prefer to only pay attention to the reported earnings of the S&P 500. This would be a mistake. In this week’s Economics Weekly, we once again highlight the importance of looking at the NIPA measure of corporate profitability with regard to what it might be telling us about both future profits for the S&P 500 and aggregate economic growth.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.