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Robert Burgess is the executive editor of Bloomberg Opinion. Previously, he was the global executive editor in charge of financial markets for Bloomberg News.
It’s time to retire the old trope that Democrats are anti-business. Perhaps it’s Republicans that are bad for business?
The Bureau of Economic Analysis’ comprehensive annual update published Thursday revealed that the U.S. economy grew $294.2 billion more in the five years ended in 2023 than previously reported. What’s really striking is how well corporate America has done. The report now shows pre-tax profits soared 90 percent to $4.09 trillion in the second quarter from $2.15 trillion in mid-2020. More than half of the increase, or $1.34 trillion, has come since 2020. Not only that, but profits have risen for six straight quarters, the longest stretch since 2005-2006.
What about during the Trump administration? Profits by that measure struggled, advancing a meager 6.3 percent from the end of 2016 through 2019, before the COVID-19 pandemic led to the worst recession since the Great Depression. As a percentage of GDP, earnings topped at around 11.5 percent, compared with record highs of more than 13 percent currently.
So much for Donald Trump’s claim of overseeing the greatest economy ever.
These gains came despite the highest interest rates in a generation. They show how the Biden administration’s signature policies — the American Rescue Plan Act, the Infrastructure Investment and Jobs Act, Inflation Reduction Act and Chips and Science Act — have made the country’s economy more resilient by fueling consumption and job growth following the pandemic and ensuring domestic business investment now and well into the future.
Just look at how investors are valuing U.S. equities. The S&P 500 Index trades at around 26 times earnings, much higher than anything achieved under the Trump administration pre-COVID.
The cynics might say that record profits are proof of “greedflation,” or price gouging by businesses. The data say otherwise. Although a September 2023 study by the Federal Reserve found that nonfinancial corporate profit margins widened “sharply” to 19 percent in mid-2021 as inflation raged, they narrowed back to 15 percent by the end of 2022, which compares with about 13 percent at the end of 2019.
Our analysis shows that much of the increase in aggregate profit margins following the COVID-19 pandemic can be attributed to the unprecedented large and direct government intervention to support U.S. small and medium-sized businesses and a large reduction in net interest expenses due to accommodative monetary policy. Without the historically outsized government fiscal intervention and accommodative monetary policy, nonfinancial profit margins during 2020-2021 would have been more in line with past episodes of large economic downturns.
To be sure, Democrats have done themselves no favors in trying to reverse the perception that they are anti-business. President Joe Biden has, on occasion, shamed corporate America for enjoying record profits as households suffered inflation rates that surged to the highest since the start of the 1980s. Such comments, according to Bloomberg News, left him lacking a big bloc of corporate executives to cheer on his Bidenomics agenda.
But that may be changing. Vice President Kamala Harris presented herself as a pragmatist “grounded in fundamental values,” when she made her case to business executives last Wednesday in a speech at the Economic Club of Pittsburgh. In comments that may sound strange coming from a Democrat, she vowed to cut the “red tape” that too often slows down progress, and to help American industry stay nimble and competitive on the global stage. “China is not moving slowly,” the Democratic nominee for president said. “And we can’t afford to either.”
The thinking is that the economy is a weak spot for Harris and the Democrats heading into the elections come November. The reality is much different, as today’s revisions show. And it’s not just corporate profits — personal incomes, spending, the saving rate, inventory investment and business outlays were all revised higher.
This is an economy that has put the ravishes of inflation behind it and is paying dividends for more Americans than ever. And yet, somehow, I don’t think this report will get the attention received by one a month ago that showed job growth was less robust in the year through March than previously reported (though still very strong). That’s a shame.
