Macro Margins Not Out of Whack

Stop Computing Macro Profit Margins Incorrectly

I heard commentators using Corporate Profits divided by GDP again. The context is typically citing it’s historically high levels, and using that as ammunition to suggest an economic imbalance.

Here is a relatively recent post https://www.economicgreenfield.com/2025/03/27/corporate-profits-as-a-percentage-of-gdp-49/, which actually has language eerily similar to this post on a different platform from 3yrs prior https://www.profitabilityissues.com/overall-q1-2022-corporate-profits-relative-to-gdp/. I’m not familiar with the authors, so maybe they update this chart regularly?

FRED even has the series constructed for you:

Either explicitly, or implicitly, this metric is treated like a profit margin for the economy. That is wrong.

Think about the formula for profit margins \[\frac{Profits}{Revenues}\]

Now think about the fraction being misused: \[\frac{Corporate Profits }{GDP}\]

What’s wrong?

1. The denominator is profit, not revenue. [Yep, GDP is a profit measure; gross profits in fact.] We’re computing a Profit/Profit measure. Not a profit margin.
2. The numerator is for corporations. The denominator is for all income earners (corp, sole proprietor, etc..)

We can indeed compute various macro profit margins. See my National Income project: https://market-observatory.com/NationalIncome.html

But I think these authors are looking for something more like this.

Net Op Surplus Decomposition

This splits up Net Operating Surplus (aka EBIT) into the entities that earned income. Here’s what I see

• Corp Profits as a Share of EBIT (light pink) has been rising since COVID
• But so has proprietor’s income (teal)
• The share of Corp Profits of EBIT is roughly the same as it was in the late 50’s / early 60s

I’m not a fan of demonizing corporate profits, but if we took that concept at face value, the data isn’t as compelling.