What role did pricing power and sector composition play in the 2023–2024 surge in U.S. corporate profits?
Executive summary
The 2023–2024 surge in U.S. corporate profits reflected a mix of genuine sectoral concentration and pricing dynamics: much of the gain came from domestic nonfinancial industries and from firms exercising pricing power amid strong demand and constrained supplies, but broader accounting shifts—like declines in net interest and proprietors’ income—also amplified the rise in corporate share of national income [1] [2] [3].
1. Sector composition: domestic nonfinancial industries drove the headline rise
Data from the St. Louis Fed show that the post‑pandemic lift in corporate profits was “entirely driven by domestic nonfinancial industries,” with corporate profits reaching $4 trillion by end‑2024 and profits as a share of national income rising about 2.3 percentage points versus pre‑pandemic norms [1]; BEA releases underpin those aggregates and provide the official series on profits [2]. Industry breakdowns further underline concentration: for example, Statista’s compilation of BEA figures highlights large profits in sectors such as wholesale trade, which alone accounted for roughly $290.5 billion in 2023 profits, signaling that a subset of industries disproportionately pulled up aggregate profit totals [4].
2. Pricing power: companies raised prices where they could, and that fed margins
Multiple observers report that strong demand and firms’ ability to raise prices were central to margin expansion: Reuters attributed the late‑2024 record highs in profits to “strong demand and pricing power,” a pattern echoed in earnings commentary from major consumer‑goods firms that tied margin gains to sustained high retail prices [3] [5]. Economists at think tanks argue that pandemic‑era supply bottlenecks left firms with scarce inventories in certain durable and consumer packaged‑goods markets, allowing those firms to pass through price increases and expand margins [6] [5].
3. How pricing power and sector mix interacted to lift aggregate profits
The surge was not just more pricing power across the board but concentrated pricing gains in sectors that already contribute large shares of national corporate income: domestic nonfinancial industries with market power and favorable post‑pandemic demand profiles raised prices, which fed into outsized profit growth for those sectors and therefore for the aggregate series [1] [4]. Research linking profits to inflation finds that corporate profits could explain an outsized fraction of price growth since 2019—roughly a third of price level growth as of mid‑2024—underscoring that sectoral price‑setting behavior translated into both higher overall margins and measured inflation [7].
4. Offsetting factors and alternative interpretations
The headline profit surge was magnified by compositional and accounting shifts: the St. Louis Fed notes that the rise in profits as a share of national income coincided with declines in net interest and miscellaneous payments on assets and in proprietors’ income, meaning some redistribution of income categories boosted the corporate slice of the pie beyond pure operating margin effects [1]. Skeptics and some academic analysts caution against attributing all price and profit moves to a sudden increase in corporate market power: historical comparisons show similar margin behavior in prior recoveries (e.g., post‑2008), suggesting long‑run structural concentration interacts with episodic demand–supply shocks—a point emphasized in EPI and other policy analyses arguing that chronic corporate power amplified pandemic shocks rather than creating entirely new forces [6].
5. Net assessment and limits of the record
Taken together, the evidence in official aggregates and policy research indicates that sector composition concentrated gains in a handful of nonfinancial industries, while pricing power in those sectors amplified margins and fed into measured inflation; yet part of the surge also reflects shifts in other income categories (net interest, proprietors’ income) that mechanically raise corporate shares [1] [2] [7] [4]. Reporting and studies cited here document these channels, though they differ on the weight to give long‑run corporate power versus short‑run pandemic shocks, and available sources do not provide a single, definitive decomposition that isolates pricing power from sector composition beyond the aggregate and industry‑level statistics cited [1] [6] [7].