71-Year High - If there's one thing that we can be sure the economy has been very good at recently, it's shattering multidecade records. Unfortunately, most of those have been negative, like "Highest inflation in 40+ years" or "Oil prices haven't risen this fast since literally being discovered." But today, the tables turn.
Alongside a slowing pandemic, accelerating inflation, and the general public learning the acronym "NFT," 2021 proved to be the most profitable year for American corporations since 1950. That's 71 years. And if that hasn't quite sunk in yet, keep in mind that the Korean War started and the Xerox machine was invented that same year.
Measured by Post-Tax Profit Margins of Non-Financial US Corporations (damn, I think I gained 5 IQ points just by saying that), profitability levels surged a massive 35% in 2021. Sure, that's not too hard considering that's coming off the nightmare that was 2020, but it's also the first time overall profitability remained above 13% for more than a one-month period since at least 1950. In short...
And it's no secret why. For starters, the unlikely trio of Donnie T, Joey B, and Daddy JPow dropped somewhere around $10tn (with a T) on the economy to fight a little thing called the c-virus. Throughout both 2020 and 2021, that egregiously unfathomable amount of money has trickled through to consumers and businesses, translating to higher spending on goods and services, which was often done at elevated prices because, you know, inflation. And, of course, zero percent rates, pent-up demand, and medical bills helped buoy profits as well, for better or worse.
But we all know U.S. corporations are incredibly generous and thoughtful organizations, so obviously, it wasn't just their NOPAT that blew up. Employee comp rose 11% annually, which sounds great, but actually isn't because the portion of that employee comp metric attributable to salaries and wages fell back to pre-2020 levels. Oh yeah, and inflation was still +7%.
As usual in American business, even the good stuff isn't all that great. At the same time that profits soared, so did things like buybacks and M&A. Of course, this is great for we apes that typically own something like 2-4 shares in these companies, but it isn't too great for those getting paid by these firms. But hey, as long as the gains keep coming, we'll take it.