By Doug Short, Advisor Perspectives:
Yesterday’s collection of Advisor Perspectives articles particularly caught my attention: Why Jeremy Grantham is Right about Corporate Profit Margins by Baijnath Ramraika and Prashant Trivedi. The article includes a number of fascinating graphs, the first of which is a snapshot of US Corporate Margins since 1947 calculated by dividing Corporate Profits after Tax by Gross National Product.
The article inspired me to produce a chart of the Profit-to-GNP ratio, but with an added and rather sobering overlay: Employee Compensation (wages and salaries), which I’ve likewise divided by GNP. Here it is.
If indeed corporate profits are mean reverting, a view supported by the authors of the Advisor Perspectives article, we see that this metric can spend many years at wide variance from the trend. Employee Compensation, however, has had a distinctly downward trend since its peak in 1970. The only conspicuous exception to the trend was the bubble period of “Irrational Exuberance,” as then Fed Chairman Alan Greenspan famously called it, that began in the mid-1990s. By Doug Short, Advisor Perspectives.
And when it comes to wages, there are “Lies, Damn Lies, and Statistics.” Read… How to Obscure one of the Biggest Economic Problems in the US