US corporate profit margins widen to highest on record

A nearly 10% increase in US corporate profits propelled a measure of profit margins to the widest on record in the second quarter, reflecting a strong earnings season helped along by price hikes and resilient consumers.

A measure of after-tax profits as a share of gross value added — a proxy for margins — climbed to 19.4% from 18.2%, according to Bureau of Economic Analysis data out Wednesday. That was the highest in data back to the 1940s.

US Corporations Make Record Profits | Margins widen in second quarter to surpass 2021 peak

US consumers have been pinched between rising prices and lagging wage growth, but they’ve largely kept spending. Strong second-quarter earnings and growing margins suggest that companies are able to pass along price increases to consumers, allowing them to either reinvest or return profits to shareholders.

“Robust revenue growth is in part a reflection of the pace at which prices have been rising over recent years, but healthy profit growth is freeing up cash that is, in turn, helping support business capital spending, with cap-ex growth extending beyond AI related investment,” Richard Moody, chief economist at Regions Financial Corp., said in a note.

The measure is limited to profits made by corporations within US borders, so it excludes profits made by US corporations abroad.

Data out Wednesday also showed nonresidential fixed investment climbed at an annualized 8.5% pace in the second quarter, led by solid business spending on equipment and intellectual property.