Regarding the hypothesis that UK firms were recently increasing profit margins under cover of general price inflation: corporate profit as % of GDP is now at the lowest level in 20 years. Not conclusive of course, because this data is tricky and there's lots going on. But suggestive at least. - ThreadSky

jomichell.bsky.social • 15 days ago

Regarding the hypothesis that UK firms were recently increasing profit margins under cover of general price inflation: corporate profit as % of GDP is now at the lowest level in 20 years. Not conclusive of course, because this data is tricky and there's lots going on. But suggestive at least.

Comments

domw.bsky.social•15 days ago

Isn’t the alignment adjustment included within the measure of corporate profits to GDP and GDI are equal? That might be what’s creating volatility in this measure.

phil-stokoe.bsky.social•15 days ago

This is also the national accounts measure, for all corporations, right (i.e. financial corporations and nonfinancial corporations?) - there is so much statistical noise in this data to make it wildly unsuitable for analyzing the basic hypothesis. Saying the data is tricky is a huge understatement.

phil-stokoe.bsky.social•15 days ago

Corporations include the Bank of England. Corporations include corporations operating as [near] monopolies with regulated prices like water companies as well as companies operating in more or less competitive markets. Needs more nuanced analysis

phil-stokoe.bsky.social•15 days ago

I'd want to look at sectors of the economy or indeed large individual firms where (a) there is monopoly or oligopoly situations and / or (b) somewhat inelastic demand and where the charge of gouging is most likely to be true.

phil-stokoe.bsky.social•15 days ago

Once again, I am asking people to use graphs showing small variations around a mean to use a graph with the y-axis starting at zero.

jomichell.bsky.social•15 days ago

and once again i am refusing. we are interested in the variation, not the stability. we can see more zoomed in.

phil-stokoe.bsky.social•15 days ago

It visually exaggerates the variation to show it like this! Makes the swings in gross operating surplus look more volatile than they are. I'm not a "y-axis should start at zero" absolutist but in this case it definitely should https://analythical.com/blog/zero-baseline-chart-formatting

jomichell.bsky.social•15 days ago

it doesn't exaggerate at all, the numbers are clearly marked on the Y axis, you just have to look at them

phil-stokoe.bsky.social•15 days ago

Yeah, I know that, and other informed users know this, and I don't think your intention is to mislead - but lots of people will not read it carefully and will be misled - and then other people will use your chart to mislead relying on that fact.

mrmarkethomas.bsky.social•15 days ago

It would be very good to see a sector-by-sector analysis, and ideally one by market share. The rate of insolvencies is also high, but there is evidence that some companies are doing just fine.

https://99-percent.org/breaking-out-of-the-doom-loop/

cpierros.bsky.social•15 days ago

With constant profit margins and stable prices one would expect the share to return to 22%, which is clearly not the case here. Is there some sort of deflation going on?

jomichell.bsky.social•15 days ago

why would we expect/assume either constant profit margins or stable prices?

jmackin2.bsky.social•15 days ago

How significant is BoE in the latest drop?

jomichell.bsky.social•15 days ago

Meaning the contribution of BoE profits, or the effect of interest rate hikes on corporate margins?

jmackin2.bsky.social•15 days ago

BoE profits (more to the point, losses)

jomichell.bsky.social•15 days ago

I'm actually not sure where those would show up in the national accounts but if we limit to private NFCs, the recent picture doesn't change much (GFC looks quite different).

cpierros.bsky.social•15 days ago

I'm trying to figure out how the argument 'margins responded to direct costs, not to markups' plays out in this figure, while inflation is easing off.
That's why I'm asking whether there's deflation eg in energy prices or a drop of interest rates in the UK

jomichell.bsky.social•15 days ago

Ah right, yes. Yes, there has been some energy price deflation. Interest rates are down slightly from the peak. I can't immediately guesstimate what change in margins we'd expect that to generate.

duncanweldon.bsky.social•15 days ago

Super hard to make any sense of that chart.

jomichell.bsky.social•15 days ago

In what way? I don't disagree, but am interested in your take.

duncanweldon.bsky.social•15 days ago

Outside of the dot com crash & the financial crisis it doesn’t appear to contain much information other than ‘profits are usually about 22%-ish of GDP’.

jomichell.bsky.social•15 days ago

Agreed. But if firms had recently aggressively hiked margins, we then wouldn't expect the share to be about 20%, all else equal.

adamlbrown.bsky.social•15 days ago

My prior is "its just noise", but it might be interesting to try to work out the sequencing of commodity price spikes and subsequent falls, retail price rises and upward stickiness, and wage demands working through, and see if that would predict the kind of rise then fall in margins we see here.

duncanweldon.bsky.social•15 days ago

Yes, I think seizing on the spike was premature analysis.