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In the debate on the causes of recent inflation, some Democrats have pointed a finger at corporate profits: If profits are rising, doesn’t that mean that companies are deciding to raise prices? In response, some extremely savvy economists and pundits who like to pretend they’re experts on whatever’s being discussed have insisted that’s not the case.

Inflation is complicated, for sure, but the Economic Policy Institute and the Brookings Institution are out with reports suggesting that, yup, corporate profits are a huge factor.

“Since the trough of the COVID-19 recession in the second quarter of 2020, overall prices in the [non-financial corporate] sector have risen at an annualized rate of 6.1%—a pronounced acceleration over the 1.8% price growth that characterized the pre-pandemic business cycle of 2007–2019,” EPI’s Josh Bivens writes. “Strikingly, over half of this increase (53.9%) can be attributed to fatter profit margins, with labor costs contributing less than 8% of this increase. This is not normal. From 1979 to 2019, profits only contributed about 11% to price growth and labor costs over 60%.”

Over half. Interesting, don’t you think?

RELATED STORY: Biden takes new action on gas prices as report shows inflation spiking

Here’s what that looks like:


Over half of all recent price increases have gone straight into corporate profits.

This is not normal, as EPI shows.

— Nathan Newman ???? (@nathansnewman) April 22, 2022

And, Bivens notes, this data means that the traditional explanations for inflation many economists are proffering now should be taken with several grains of salt. “The historically high profit margins in the economic recovery from the pandemic sit very uneasily with explanations of recent inflation based purely on macroeconomic overheating,” he writes. “Evidence from the past 40 years suggests strongly that profit margins should shrink and the share of corporate sector income going to labor compensation (or the labor share of income) should rise as unemployment falls and the economy heats up. The fact that the exact opposite pattern has happened so far in the recovery should cast much doubt on inflation expectations rooted simply in claims of macroeconomic overheating.”

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At DC Report, Dean Baker draws a similar conclusion. “A popular line on our recent surge of inflation is that an over-tight labor market has led to rapid wage growth, which in turn forces companies to raise prices. Higher prices in turn lead workers to demand higher wages, which will give us a wage-price spiral and soon lead to double-digit inflation,” contrasting with today’s reality. 

Baker points out, “While this was a story that plausibly fit the data in the 1970s, it is very hard to make the wage-price spiral fit the current situation for a simple reason: The wage share of income has fallen sharply since the pandemic.” The wage share had recovered slightly since the Great Recession, until “we see a sharp reversal in 2021, with the wage share falling from 76.1% to 73.7%, a decline of 2.4 percentage points.” Baker does point to supply-side disruptions from the pandemic, rather than corporate profits, as the culprit in inflation. And Bivens, too, notes, “Non-labor inputs—a decent indicator for supply-chain snarls—are also driving up prices more than usual in the current economic recovery.”

The new report from Brookings looks at 22 major companies, finding that “across all 22 companies, the average real wage gain, factoring in inflation, was between 2% and 5% through October 2021. Unless these companies raised wages substantially since then, fast-rising inflation would have eroded most, or even all, of the 2% to 5% average wage gains. And at most, only seven of the 22 companies are paying at least half of their workers a living wage—enough to cover just their basic expenses.”

By contrast, those same companies made sure their shareholders did very well, spending five times more on dividends and stock buybacks than they did on paying their workers better. Directed to the workers who kept the companies running, that money could have made a big difference: “The 16 companies that repurchased nearly $50 billion of their shares could have raised the annual pay of their median worker by an average of 40% if they had redirected that money to employees.“ The overall effect of how these major corporations handled their finances during the pandemic was unsurprising: “Workers experienced the brunt of companies’ losses, while executives and shareholders generally avoided them.”


As profits soared, companies spent 5x more rewarding shareholders (via dividends & #stockbuybacks) than raising pay for workers.

If companies had redirected stock buybacks to > worker pay, the companies could have > annual pay for their median worker by an avg of 40%.


— Molly Kinder (@MollyKinder) April 21, 2022

So when someone tries to tell you that it’s a simplistic, unsophisticated take to wonder if inflation might be linked to corporate profits … feel free to push back. It’s not the only story, and supply chain problems are a significant factor. But with corporate profits contributing more to rising prices than they had from 1979 to 2019, and with companies sending large piles of money back to shareholders and protecting executives from pay loss in the pandemic while giving workers stingy raises, no one who denies that corporations bear responsibility for rising prices and their effect on working people should be taken seriously.

RELATED STORY: Unemployment is down. Wages are up for those who need it most. The March jobs report is strong

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Tech stocks just had their worst two-week stretch since the start of the pandemic

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Pedestrians pass by the New York Stock Exchange.Michael Nagle | Bloomberg | Getty Images

What started off as a third-quarter rebound has turned into a flop for tech investors.

The Nasdaq tumbled 5.1% this week after losing 5.5% the prior week. That marks the worst two-week stretch for the tech-heavy index since it plunged more than 20% in March 2020, the start of the Covid-19 pandemic in the U.S.

related investing newsMeta is a buy as the social media giant embarks on plan to slash costsPaulina Likosa day ago

With the third quarter set to wrap up next week, the Nasdaq is poised to notch losses for a third straight quarter unless it can erase what's now a 1.5% decline over the final five trading days of the period.

Investors have been dumping tech stocks since late 2021, betting that rising inflation and increased interest rates would have an outsized impact on the companies that rallied the most during boom times. The Nasdaq now sits narrowly above its two-year low from June.

Hammering the markets this week was continued action by the Fed, which on Wednesday raised benchmark interest rates by another three-quarters of a percentage point and indicated it will keep hiking well above the current level as it tries to bring down inflation from its highest levels since the early 1980s. The central bank took its federal funds rate up to a range of 3%-3.25%, the highest it's been since early 2008, following the third consecutive 0.75 percentage point move.

Meanwhile, as rising rates have pushed the 10-year treasury yield to its highest in 11 years, the dollar has been strengthening. That makes U.S. products more expensive in other countries, hurting tech companies that are heavy on exports.

"This is a one-two punch on tech," Jack Ablin, Cresset Capital's chief investment officer, told CNBC's "TehcCheck" on Friday. "The strong dollar doesn't help tech. High 10-year treasury yields don't help tech."

VIDEO4:5104:51Watch CNBC's full interview with Cresset Capital's Jack AblinTechCheck

Among the group of mega-cap companies, Amazon had the worst week, dropping close to 8%. Google parent Alphabet and Facebook parent Meta each slid by about 4%. All three companies are in the midst of cost cuts or hiring freezes, as they reckon with some combination of weakening consumer demand, tepid ad spending and inflationary pressure on wages and products.

As CNBC reported on Friday, Alphabet CEO Sundar Pichai faced heated questions from employees at an all-hands meeting this week. Staffers expressed concern about cost cuts and recent comments from Pichai regarding the need to improve productivity by 20%.

Tech earnings season is about a month away, and growth expectations are muted. Alphabet is expected to report single-digit revenue expansion after growing more than 40% a year earlier, while Meta is looking at a second straight quarter of declining sales. Apple's growth is expected to come in at just over 6%. Expectations for Amazon and Microsoft are higher, at about 10% and 16%, respectively.

The latest week was particularly rough for some companies in the sharing economy. Airbnb, Uber, Lyft and DoorDash all suffered drops of between 12% and 14%. In the cloud software market, which soared in recent years before plunging in 2022, some of the steepest declines were in shares of GitLab (-16%), (-15%), Asana (-14%) and Confluent (-13%).

Zoom In IconArrows pointing outwardsSharing economy stocks this weekCNBC

Cloud giant Salesforce held its annual Dreamforce conference this week in San Francisco. During the portion of the conference targeted at financial metrics, the company announced a new long-range profitability goal that showed its determination to operate more efficiently.

Salesforce is aiming for a 25% adjusted operating margin, including future acquisitions, CFO Amy Weaver said. That's up from the 20% target Salesforce announced a year ago for its 2023 fiscal year. The company is trying to push down sales and marketing as a percentage of revenue, in part through more self-serve efforts and through improving productivity for salespeople.

Salesforce shares fell 3% for the week and are down 42% for the year.

"There's so many things happening in the market," co-CEO Marc Benioff told CNBC's Jim Cramer in an interview at Dreamforce. "Between currencies and the recession or the pandemic. All of these things that you're kind of navigating many forces."

WATCH: Jim Cramer's interview with Marc Benioff at Dreamforce

VIDEO9:3909:39Watch Jim Cramer's full interview with Salesforce co-CEO Marc BenioffMad Money with Jim CramerTVWATCH LIVEWATCH IN THE APPUP NEXT | ETListen

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