This morning, I came across a political discussion in the Financial Modelling in Excel group at LinkedIn.com. The discussion was starting to generate more heat than light.
The discussion started with a link to this post at Business Insider: Here Are Four Charts That Explain What The Protesters Are Angry About…
One of the author’s charts showed that corporate profits are at an all-time high; another showed that wages as a percent of the economy are at an all-time low. “In other words,” he wrote, “corporate profits are at an all-time high, in part, because corporations are paying less of their revenue to employees than they ever have.”
There are many ways to respond to that conclusion, but I thought it would be useful to measure wages and profits on the same scale to see what I could learn.
Using KydWeb, I loaded data from the following FRB series into Excel:
| SeriesID | Title | Units |
| CP | Corporate Profits After Tax at a Seasonally Adjusted Annual Rate | Billions of Dollars |
| GDPDEF | Gross Domestic Product: Implicit Price Deflator | Index 2005=100 |
| POPTHM | Population: Mid-Month | Thousands |
| A229RX0 | Disposable Personal Income: Per capita: Chained (2005) Dollars | Chained 2005 Dollars |
I divided the corporate profits after tax by the price deflator to find real corporate profits. Then I divided by the population and adjusted for the difference in units to find corporate profits per capita. Finally, I compared my results with the personal income per capita series from the FRB. You can see the results here:
As this chart shows, personal income is so much greater than corporate income — on a per-capita basis — that even if all corporate profits were converted to dollar bills and shoveled from helicopters, real personal income wouldn’t increase much at all.
Further, adjusted for inflation, my results show that corporate profits are not at an all-time high. In constant dollars, four quarterly results have been higher. And in constant dollars per capita, six quarterly results have been higher.
So the Business Insider post seems to be mistaken.
Or have I missed something? You can download my workbook here. Where have I gone wrong?
{ 2 comments }
Charlie,
This looks reasonable to me. I’m curious about KydWeb. What will it do?
Thanks,
Win
Win,
By October 31 (I hope!) you’ll be able to read a description and see a video about KydWeb here:
http://www.exceluser.com/catalog2/addins/kydweb-sa.htm
But in short, it offers two sets of functions.
It offers Special Functions that return data and calculations from three top sources of economic and business data. The calculations include those offered by Excel’s SUBTOTAL function, plus TREND, GROWTH, LOGEST, and a few more.
By the way, I’ve fallen in love with my LOGEST function, because it lets me directly calculate growth rates for economic and business data. For example, you could enter one formula to learn Apple’s annual growth rate for any span of quarters during its past 50 quarters. Another formula could tell you the average growth rate for the price of cardboard shipping containers for just about any span of months. The shipping-container data is from the Bureau of Labor Statistics, which has more than 40 million data series.
KydWeb’s General Functions work with all other web sites. This evening, for example, I discovered a source of gold price history by month for just about any currency. It took me about two minutes to create an Excel table of gold price history in Euros. Every once in a while, the Wall Street Journal publishes charts showing the price of gasoline or other commodities priced in gold. My General Functions will allow us to show similar trends for any data we want, internal or external.
Fun stuff!
Charley