A blog from BEA Director Vipin Arora
Every year, usually in January, I feel absolutely committed to getting a better handle on my finances. All I want to understand—not just at the end of the year, but throughout the year—is exactly what is coming in, what is going out, and what I have left over. Yet I can never seem to calculate these “personal profits,” nor how far I am from the mythical financial goals I’m supposed to have. Maybe my struggles are why I find our estimates of corporate profits at BEA so remarkable.
Somehow, someway, we estimate the combined corporate profits of all U.S. corporations every quarter. And we’ve been doing that in some capacity since 1938 (since 1934 for annual estimates). Our featured measure of corporate profits—profits from current production—provides a comprehensive economic measure of the income earned by all U.S. corporations. It also serves as an indicator of economic performance. Profits, in general, are a source of retained earnings, often providing funding for hiring and other investments that can improve productivity. And they are sometimes used to evaluate the effects of policy changes or economic conditions on corporations.
An important characteristic of corporate profits from current production is that this statistic provides consistent coverage over time of all U.S. corporations. As such, it is unaffected by changes in tax laws and is adjusted for nonreported and misreported income. Profits from current production also exclude dividend income, capital gains and losses, and other financial flows and adjustments, such as deductions for “bad debt.” Thus, our measure of profits is a particularly useful analytical measure of the health of the corporate sector.
But profits from current production isn’t our only measure of corporate profits—there is a flavor for everyone. For example, we have corporate profits by industry, corporate profits made within U.S. borders (also called domestic profits), and corporate profits before tax (for all corporations and for only nonfinancial corporations). If you want to get fancy, we also have dividends and undistributed profits for all corporations or for just nonfinancial corporations.
Over time, BEA’s corporate profits estimates have become an important economic indicator. For example, Wall Street analysts use corporate profits to track overall U.S. corporate health. Industry analysts across the country use our industry profits to track industry financial health. Forecasters inside and outside government use these estimates to project investment in plants and equipment. And government policymakers at all levels use profits to project tax receipts.