Corporate profits and margins have continued to remain high despite the difficult macro-economic environment of the past five years. In this report we examine the sustainability of elevated corporate profits. Recently, reported U.S. earnings have been mixed, with some large companies surprising on the downside due to a combination of rising costs and weaker than expected sales, giving rise to concerns that the trend of total profits may be heading lower.
In the immediate aftermath of the 2008-2009 financial crisis, companies slashed payrolls and investment. However, the anticipated worst case scenario did not materialize and sales beat expectations during the recovery. Delayed hiring and investment meant that a leaner, well-capitalized corporate sector was able to produce extraordinary results in a difficult period.