A measure of US profit margins has reached its widest since 1950, suggesting that the prices charged by businesses are outpacing their increased costs for production and labor.
After-tax profits as a share of gross value added for non-financial corporations, a measure of aggregate profit margins, improved in the second quarter to 15.5% — the most since 1950 — from 14% in the first quarter, according to Commerce Department figures published Thursday.
The data show that companies overall have comfortably been able to pass on their rising cost of materials and labor to consumers. With household budgets squeezed by the rising cost of living, some firms have been able to offset any slip in demand by charging more to the customers they’ve retained — though others like Target Corp. saw their inventories swell and were forced to discount prices in order to clear them.
The surge in profits during the pandemic era has fueled a debate about whether price-gouging companies carry a share of the blame for high inflation — an argument pushed by President Joe Biden’s Democrats. Most economists have been skeptical about the idea.
US inflation has surged this year and stood at 8.5% in July, not far short of the previous month’s four-decade high. Federal Reserve officials have pointed to rising wages as one of the big risks that could keep inflation entrenched. But some economists say that historically elevated profit margins mean there’s room for businesses to accommodate worker demands for better pay without setting off a wage-price spiral. [Continue reading…]