Earlier in the year, I predicted that corporate profitability would fall as US corporate profit margins were cyclically high. The New York Times is reporting that corporate profits fell in Q1 2012 for the first time since the fourth quarter of 2008. I expect this trend to accelerate.
There are a number of things behind the uptick in profits:
Corporations have cut headcount significantly due to the recession and subsequent slowdown in growth in the US. This has given firms greater operating leverage as the economy has improved because firms have been slow to increase headcount.
US firms receive a large chunk of their profits from abroad and increasingly from emerging markets where growth has been more robust than in the US.
Large government deficits are balanced by large...
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Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty five years of business experience. He has also been a regular economic and financial commentator in print and on television for the past decade. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College.