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US Businesses in Recession-Like Mode

Economics, Economy Comments (4)

Undistributed Corporate Profits (corporate profits that are neither paid as corporate profits taxes nor paid to shareholders as dividends) as percentage of GDP based on official data.

image

Official recessions are marked in red as per NBER data. The chart shows that, as business cycles contract, corporations are able to retain less of their profits (the curve goes down). During expansions, the corporations retain more of their profits (the curve goes up).

As you can see, corporations have not been able to retain profits at the level of the peak since the first quarter of 2006. The fourth quarter of 2006 looks like the normal bottom of a recession (as compared to 2001, 1990, 1980, etc.).

The following chart is a detailed view of the 2000-2007 period.

image

As you can see, regardless of any official announcement of recessions, US businesses have been behaving as they normally do during recessions. It is beyond of the scope of this analysis to account for the reasons why they are not able to retain more of their earnings. One simple, and probable, answer is that we are in a recession, and that the statistical error introduced by analyzing dollar based data is hiding the truth.

You read it here first: The US economy has been in recession since the four quarter of 2007 and is now starting to get out (thanks to the Fed’s “free money”). Says who? Just all the American corporations.

Update of previous post with 3rd Quarter information. This is quarterly data from 1947 to the third quarter of 2007.

Franklin @ December 2, 2007

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