Q1 2012 Corporate Profits

The BEA released corporate profits for Q1 2012 along with the GDP. Corporate profits after tax are through the stratosphere, up 10.1% from Q4 2011 to $1,644.9 billion for Q1 2012. Corporate profits after tax are also up 13.1% from a year ago.

 

 

Corporate profits with inventory valuation and capital consumption adjustments, after tax, decreased -5.7% from last quarter to $1,486.5 billion but are up 2.2% from one year ago. Quarterly tax receipts increased for Q1 by $83.3 billion.

 

 

Corporate profits with inventory valuation and capital consumption adjustments, pre-tax, decreased $6.4 billion to $1,980.5 billion, or -0.3% from Q4 and still up 5.5% from a year ago. These are profits from current production.

 

 

Net cash flow, with inventory evaluation adjustment declined –6.5% from Q4 to $1,768.9 billion.

 

 

It's pretty clear corporations are busy squeezing workers, as usual. Gross value added is production, or output of a company minus the inputs, or consumption it uses to make that output.

In the first quarter, real gross value added of nonfinancial corporations increased 3.8 percent. Profits per unit of real product increased, reflecting an increase in unit prices and a decrease in unit labor costs; unit nonlabor costs were unchanged.

The BEA reports corporate profits in a variety of ways and it seems whatever one's focus and political predilections are implies which number they use.

From the BEA's magic secret decoder ring guide to National Income and Product Accounts (large pdf), national income also uses inventory valuation and capital consumption adjustments. Their reasoning for inventory valuation is this:

Inventory valuation adjustment (IVA) is the difference between the cost of inventory withdrawals valued at acquisition cost and the cost of inventory withdrawals valued at replacement cost. The IVA is needed because inventories as reported by business are often charged to cost of sales (that is, withdrawn) at their acquisition (historical) cost rather than at their replacement cost (the concept underlying the NIPAs). As prices change, businesses that value inventory withdrawals at acquisition cost may realize profits or losses. Inventory profits, a capital-gains-like element in business income (corporate profits and nonfarm proprietors’ income), result from an increase in inventory prices, and inventory losses, a capital-loss-like element, result from a decrease in inventory prices.

The mysterious capital consumption adjustment, along with inventory valuations, derives current production income.

The private capital consumption adjustment (CCAdj) converts deprecia­tion that is on a historical-cost (book value) basis—the capital consump­tion allowance (CCA)—to depreciation that is on a current-cost basis—consumption of fixed capital (CFC)—and is derived as the difference between private CCA and private CFC.

Since this is what the BEA uses for national accounts and makes much more sense from a business accounting perspective generally, seems the above before and after tax numbers are the right metrics to use when thinking about corporate profits from a national and macro-economic perspective.

That said, the general corporate profits after tax shows another story, namely workers make less, corporate profits are at an all time high and there are fewer workers, especially if one focuses in on U.S. citizens, than ever before.

Here is the report text on corporate profits after tax and the dollar amount breakdowns of the differences between profits reported.

Profits before tax increased $234.3 billion in the first quarter, in contrast to a decrease of $8.3 billion in the fourth. The before-tax measure of profits does not reflect, as does profits from current production, the capital consumption and inventory valuation adjustments. These adjustments convert depreciation of fixed assets and inventory withdrawals reported on a tax-return, historical-cost basis to the current-cost measures used in the national income and product accounts. The capital consumption adjustment decreased $230.4 billion in the first quarter (from $100.9 billion to -$129.5 billion), compared with a decrease of $1.8 billion in the fourth. The inventory valuation adjustment decreased $10.4 billion (from -$18.6 billion to -$29.0 billion), in contrast to an increase of $26.9 billion.

If the above magic secret BEA decoder ring didn't make much sense, try this one:

Corporate profits with inventory valuation and capital consumption adjustmentsis the net current-production income of organizations treated as corporations in the NIPA's. These organizations consist of all entities required to file Federal corporate tax returns, including mutual financial institutions and cooperatives subject to Federal income tax; private noninsured pension funds; nonprofit institutions that primarily serve business; Federal Reserve banks; and federally sponsored credit agencies. With several differences, this income is measured as receipts less expenses as defined in Federal tax law. Among these differences: Receipts exclude capital gains and dividends received, expenses exclude depletion and capital losses and losses resulting from bad debts, inventory withdrawals are valued at replacement cost, and depreciation is on a consistent accounting basis and is valued at replacement cost using depreciation profiles based on empirical evidence on used-asset prices that generally suggest a geometric pattern of price declines. Because national income is defined as the income of U.S. residents, its profits component includes income earned abroad by U.S. corporations and excludes income earned in the United States by the rest of the world.

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When people are working for free, of course this happens

No surprise here. Read the tens of thousands of ads for US labor now being asked to work for free in "internships" in the US for those jobs not outsourced in everything from medicine and law to publishing, manufacturing, and every other field. When companies can get free labor without paying for the education or skills of those slaves, oops, interns, not pay for the infrastructure they use, own the govt. to turn a blind eye or actively encourage these abuses, and then exploit the labor arbitrage overseas too (Foxconn also has mandatory internships too - China was too expensive I guess), piggies at the top say "Oink, oink! Job creators, we are job creators! Now get me my private banker and coke dealer on the phone."
"Please, sir, I want more." I don't want any more.
When people hold you in contempt, when they ensure you and your family and neighbors are headed to inevitable misery and death, and when they ignore the legitimate pleas for change and reform while they prosper, don't continue to go silently along. Treat them as they treat you - 100 fold, so that not only do they learn the lesson, but those who considered doing the same thing to you are persuaded to never tread down that path.

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New lawyers are suing their law schools

New Lawyers are suing their law schools due to running up > $100k in debt with no job. Add to that, illegal immigrants are suing trying to claim they should be allowed to practice law in the United States. Guess what kind of law....immigration law. Lovely.

We have 1.8 million STEM (highly skilled labor) completely out of their chosen fields yet we have the never ending cheap labor lobbyists drum beat trying to claim there is a shortage. It's complete B.S., there is no shortage, in fact there is a glut of STEM PhDs.

Why, specifically I mentioned worker squeeze is all of the increases in profits after tax are due to declining labor unit costs. That means corporations increased their profits by squeezing, laying off, low balling wages, salaries, benefits, of their staff.

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The ABA and law schools rigged the game - more scoundrels

American law grads for many years (decades now) were constantly informed in the media, law school publications, and elsewhere that grads were securing jobs at 95% 9 months after graduation and MEDIAN salaries were at $100,000 +. Prospective students did not have the truth prior to the blogs coming out on this issue in the last 5-10 years. Even as recently as 2010 these liars and criminals were still claiming $160,000 median and 95% placement in many, many publications and talks. Now before everyone goes bashing attorneys, the fact is many law grads went to school seeking DA positions which pay $50,000 to start, public defender positions, low-level corporate staff positions, etc. so yes, law school, like everything else, is cost-benefit analysis. And the scoundrels at the law schools and ABA kept talking about the usefulness of a law degree, never mentioning that a law degree makes most people "overqualified" in the eyes of non-legal employers.

Law students had to go to college, take the LSAT, go for three years to law school, and then take a bar exam in every state they wanted to practice in. Mind you, some bar exams have 50% passage rates. The law schools don't prepare students for the bars, students have to take review courses for additional $.

What happened was the ABA and law schools saw an ATM machine in students. They approved and approved more and more law schools, something the AMA never does with med schools to restrain the supply and ensure students have careers after graduation. So, saddled with debts and diminishing prospects based on ABA and law schools, the ABA and career offices kept churning out more schools and attorneys and lying to future students by maintaining the median salary and placement lies. And when students in recent years started getting more and more aggressive regarding their unemployment, the ABA, law schools, and other shills said students just had to "network, it's not our fault you can't find jobs." Of course! Network! Funny how a D- student with connections to some trust fund family has a network that works but A students from non-trust fund backgrounds just seem to struggle a little bit more forever.

Then, in 2008-, the ABA and other bar associations that are controlled by big law firms and coddle law faculties and law schools' administrators approved outsourcing! If you examine disciplinary actions, you'll see big law firms have confidentiality breaches and conflicts of interest, but just like big banksters, they skate and maintain their firms. Small firms and solos can be driven out of business. So now a foreigner overseas who never went to law school or college in the US, never paid for seven years of total school, and never passed a bar exam, could take an American attorney's work. Again, this not only affects the vast oversupply of attorneys now, undercuts wages, but remember this, can you trust someone in a foreign country with IP documents, medical insurance documents, sensitive contracts, attorney-client privilege, SSNumbers? Because that's what they have access to now thanks to the ABA and everyone else involved. Once again, labor arbitrage. How and why did the ABA do this? Who was paid what and why to make this decision? Because no law student or unemployed attorney would ever approve that.

This has been covered in many, many, many blogs that have finally taken on the ABA, law schools, and the vastly overpaid faculties and career services in all the schools over the last few years. Ah yes, law professors, those people that maybe got a clerkship, worked in document production in a big law firm for a year or two, and then ran back to academia. So, global arbitrage again rears its ugly head in industries and sectors where a small percentage of self-appointed elites that have no problem stepping on others has made extremely difficult for everyone else. But remember this, the ABA's motto is "Defending Liberty, Pursuing Justice." They even go overseas and spread the word - they are scouting locations for more outsourcing. Bangladesh could work. Now hand over those patent docs ASAP!

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STEM

Bob, that 1.8 Million STEM workers out of jobs represents 65%
of the 2.75 million STEM workers according to the USDOL. If you count the L1 and H1 Visa totals for the last 20 years, it is around 2.1 Million Visas. The displacement of STEM by Visa workers is obvious. Just go to any corporate or government office to see it first hand.

It is a staggering human tragedy and the victims are everywhere. There is no recovery ever until STEM workers in this country get their jobs back.

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Burton Leed