Corporate ‘greedflation’ is a hot topic, but non-financial corporate profit margins show new signs that high inflation and rising interest rates are hurting the Canadian economy.
New figures released this week by Statistics Canada show third-quarter corporate profits fell for the first time in early 2020 on a seasonally adjusted basis. This is when Statscan began reporting companies’ financial performance in such a manner.Decrease in net income before tax $137 billion, up 8.1% from the previous quarter.
Despite companies in many sectors reporting record profits on surging revenues over the past two years, the decline in earnings has impacted corporate profit margins, which are below pre-pandemic levels. Almost match.
Analysts have been warning of a slowdown in corporate earnings for months, but with profit margins under pressure, it’s likely to hurt the economy as a whole and heighten fears of a recession.
To maintain profitability, businesses face pressure to cut costs, or headcount, while seeking opportunities to pass on more rising costs to consumers. Shrinking profit margins could also create further headwinds for the market as investors lower their expectations of his 2023 earnings.
Decoder is a weekly magazine that rolls out important economic charts.