Jul 26, 2021 - Economy & Business

Corporate profit margins holding up despite cost inflation, rising wages

Data: NABE: Chart: Axios Visuals
Data: NABE: Chart: Axios Visuals

Businesses haven’t been this positive about their profit margins in a long time.

Why it matters: We’ve been hearing a lot about cost inflation and rising wages. All other things being equal, these forces should be negative for profitability.

What they’re saying: A net 35% of professionals working for private-sector firms or trade groups said corporate profit margins expanded in the second quarter, according to a new survey from the National Association of Business Economics.

  • This was a record high in the survey’s 39-year history. Just 7% of respondents said margins were falling while 42% said margins were rising.
  • "Inflation, while increasing, is still very low, and according to the survey, many firms, especially in the goods-producing and the [transportation, utilities, information, and communications] sectors, expect increases in costs to be temporary," NABE Business Conditions Survey chair Eugenio Aleman tells Axios.
  • "Thus, this could be influencing the response from survey participants that profits will continue to remain high in the near future.”

Between the lines: These findings seem surprising, especially with all those reports of executives sounding the alarm on inflation.

  • Still, many of those same reports note that executives were planning to pass rising costs to their customers through price increases.
  • Indeed, 33% of respondents to NABE’s survey said prices charged were rising while just 5% said prices were falling.
  • For the next three months, 43% said they expected prices to rise with just 1% expecting prices to fall.

The bottom line: Be wary of when companies and executives voice concerns about inflation. While it may sound like a problem for businesses, they’ll do whatever they can to preserve profits, even if it means making their customers pay for it.

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