Higher Costs Take a Bite Out of Corporate Profitability in Q4


  • Revised data showed that real GDP grew at an annualized rate of 6.9% in Q4-2021, which was little changed from the previous two estimates.
  • Real GDP growth in Q4-2021 was generally driven by modest growth in real consumer spending and by a sizeable increase in inventories, which appears to have been intentional.
  • The sequential rate of real GDP growth likely has downshifted in Q1-2022, but it appears to have remained in positive territory.
  • Today’s data provided the first look at the income side of the economy in the fourth quarter. Whether measured by spending or by income, growth in the U.S. economy was strong at the end of last year.
  • Economy-wide pre-tax corporate profits advanced 0.7% in the fourth quarter to a record $2.9 trillion. Profits have soared since the throes of the pandemic amid strong domestic demand.
  • Profit margins, which are perhaps more telling of corporate profitability, slipped to 12.2%. While still elevated by historic comparison, the decline in margins suggests the higher-cost environment is eating into profitability.
  • With cost pressure remaining persistent and demand slowing, we expect margins to slow further this year as businesses find it increasingly difficult to pass costs onto consumers.