U.S. companies just had their best year since before most of us were born

Roughly one in five Americans lists soaring prices as the nation's biggest economic problem. By contrast, major U.S. corporations seem to be riding out the fiercest inflation in 40 years just fine.

While CEOs spent much of 2021 pointing to the impact of rising wages, pricier raw materials and other ballooning expenses on their companies' performance, data released Wednesday by the Commerce Department show they mostly passed these costs along, and more, as corporate profits spiked. 

For all of 2021, pre-tax profits climbed 25% to about $2.8 trillion, another record that far outpaces the 7% increase in consumer prices over the same time span. That burst powered non-financial U.S. companies to their most profitable year since 1950, according to Bloomberg News. In every quarter of 2021, the overall profit margin remained above 13%, an altitude hit in only one other quarter during the last seven decades. 

Growth slowed sharply in the fourth quarter, with profits edging upward just 0.7% from the prior three-month period to an annualized rate of $2.94 trillion. Still, hefty corporate profits last year help explain why U.S. stock markets have largely shrugged off concerns about roaring inflation and, more recently, Russia's invasion of Ukraine. 

The S&P 500 is less than 5% off its record high set on January 3; the Dow Jones Industrial Average, which lists blue-chip stocks, is also roughly 5% off its all-time high.

Food companies in particular blamed pandemic disruptions, inflation and strong consumer demand for higher prices, with pork and beef up 14% and 20%, respectively, versus a year ago. Those prices, in turn, have often fueled a jump in earnings. Tyson Foods, the nation's biggest meat processor, posted more than $1 billion in profit in the first quarter of 2022, up 48% from the year-earlier period. 

"We're not asking customers or the consumer ultimately to pay for our inefficiencies. We're asking them to pay for inflation," the company's CEO said in an earnings call in February.

Inflationary pressures are not expected to abate this year, leaving the average family with an additional $433 in monthly costs for the same goods and services, Bloomberg economists Andrew Husby and Anna Wong estimate. Costlier food and energy, including gasoline and home heating, account for about $2,200 of that total, they said. 

Americans workers have also benefited from the economy's swift rebound from the sharp recession that followed the outbreak of COVID-19 in 2020. Labor data shows that average hourly earnings in 2021 rose 5.7%. Over the longer term, however, wage gains have for decades trailed increases in both productivity and corporate profits.

"Real wages systematically undershot productivity growth for most of the last two decades, and the labor share of income fell notably as a consequence. Corporate profit margins were the prime beneficiaries of the falling labor share," Morgan Stanley analysts said in a report on Thursday.