Corporate Profit Margins Widen Despite Inflation
U.S. corporate profit margins grew in Q2 to the widest in 72 years, according to Wells Fargo. They found that nominal profits for GDP rose 6.1% (not annualized) during the quarter on a pre-tax basis, "the fastest pace in a year." Not only that, the $175 billion gain in profits in Q2, "lifted overall corporate profits to a record $3.0 trillion."
Further evidence shows that profits are overpassing costs for production and labor. Pre-tax margins rose to 12.2%, running above the 11.5% averaged in the previous cycle, according to a chart from The National Income and Product Accounts (NIPA). "Companies continue to be able to pass on the rising costs of labor and materials to consumers, even as inflation has squeezed household balance sheets," Wells Fargo suggests.
Energy companies, such as Exxon Mobil and Chevron, have "quadrupled their earnings last quarter from a year earlier as process soared for oil, gasoline and natural gas amid the worst inflation in 40 years," per AP News.
However, experts still expect profits to narrow later this year as persistent price pressures dampen consumer demand and corporations prepare for a potential recession. "Inflation has been even worse for companies at the wholesale level than what they're charging consumers at the register, adding pressure to their profits," AP News reports.