Goldman Sachs: US Corporate Markups Lift Profit Margins from 5% to 10%
GS•Goldman Sachs economists report that after-tax corporate profits rose from roughly 5% in the late 1980s to over 10% recently, driven by increasing price markups. They estimate higher incomes and greater income inequality account for an 8-percentage-point aggregate retail markup increase since 1980.
1. Rising Markups and Profit Margins
Goldman Sachs economists find that US firms have substantially increased price markups since the 1980s, contributing to after-tax corporate profits rising from about 5% of value added in the late 1980s to over 10% recently. This trend signals stronger pricing power across sectors.
2. Consumer Price Sensitivity Decline
Analysis indicates that rising household incomes have reduced the opportunity cost of time, leading consumers to search less for lower prices. As a result, aggregate price elasticity of demand has weakened, allowing firms to maintain higher markups.
3. Income Inequality Effects
Higher average income levels and growing income inequality mean less price-sensitive households account for a larger share of total consumption. Goldman Sachs estimates these factors have driven an approximate 8-percentage-point rise in the aggregate retail markup since 1980, reinforcing a K-shaped spending pattern.
