That’s EJ Antoni, Chief Economist of Heritage, writing three days ago in the Washington Times:
Dr. Antoni is writing about corporate net income after tax. That has definitely soared. Of course, looking at manufacturing profits with inventory valuation adjustments, things look a little differently.
Figure 1: Manufacturing profits with inventory valuation adjustment fm BEA (blue), and corporate net income after tax fm Census (red), both in billions 2017$ SAAR. Deflation using PCE deflator. Source: BEA, Census, and author’s calculations.
Indeed, corporate profits after-tax have surged, particularly in Q2. However, it’s not clear to me that profits with valuation adjustments, before taxes (so registering the actual health and momentum of the sector) have changed so much. After all, just because you can expense some equipment at 100% — so increasing after-tax income — doesn’t mean underlying productivity is higher.
It’s also important to note that Q2 includes IEEPA tariff refunds…
Figure 2: Manufacturing profits with inventory valuation adjustment fm BEA (blue), corporate net income after tax fm Census (red), corporate net income ex-total tax refunds from May and June, all in billions 2017$ SAAR. Deflation using PCE deflator. Source: BEA, Census, and author’s calculations.
On the other hand, I agree that ending the US-Iran war would boost the manufacturing sector, by reducing energy costs, relaxing supply chain constraints, and reducing policy uncertainty.
“It helps explain why the manufacturing sector, which had been hemorrhaging jobs for three straight years, is now adding jobs.”
fred.stlouisfed.org/series/manemp
Notice how this liar left off the surge in manufacturing employment under Biden’s early years. How much does Heritage pay this clown to mislead?
And let’s not forget the enormous transfernof wealth from households, government, farmers, truckers, and many, many others, to oil companies:
Big Oil Companies Report Record Profits Amid High Oil Prices
“The Energy sector is reporting the highest earnings growth clip of all 11 market sectors at 128.2% Y/Y, well above the S&P 500 average at 37.9%, thanks in large part to higher oil prices amid the Middle East conflict.”
https://finance.yahoo.com/energy/articles/big-oil-companies-report-record-190000465.html
Thisbis just another case of little Antoni pretending to do economics. He left out everything but the politically useful headline.
Allow me, once again, to recommend Harry Frankfurt’sbexcellent little book:
https://press.princeton.edu/books/hardcover/9780691276786/on-bullshit
The w strongest sectors for corporate profit increases in Q2 were AI data center-related companies, and the energy sector. Neither of which are benefiting the average American consumer, and the second of which is an active stagflationary drag.
If anybody is interested, I recommend reading “Why Nations Fail.” While nobody rings a bell at the inflection point, I believe the US economy has crossed the threshold into a mainly “extractive” economy, primed to benefit the autocratic ruler and his cronies (see Putin, V.).
Soaring corporate net income is the mirror image of the record low labor share of the economy. Be guided accordingly.
Oh, and given the importance of the windfall from oil prices to profits, little Antoni is almost sure wring about and end to the war against Iran keeping the profit boom going. The economy will improve fir almost everyone but the oil industry and weapons makers (weapons makers with a long, long lag), but the profit boom, in aggregate, will collapse. That’s how much the war has skewed profits toward oil.