Monday, July 26, 2010

Industry profits are up because of deep cuts made during the recession.
Profit margins -- the percentage of revenue left over after expenses -- crumble in most recessions, as overall sales fall but fixed costs like infrastructure, commodities and rent remain the same. In 2002, during the recession that followed the bursting of the technology bubble in addition to the Sept. 11 attacks, margins sank to 4.7 percent. Although the most recent downturn was far more severe, profit margins bottomed out at 5.9 percent in 2009 and quickly rebounded. By next year, analysts expect margins to hit 8.9 percent, a record high.
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To be sure, sales are rising for many companies, albeit at a much slower pace than the increase in profits. Among the 175 companies in the S.& P. 500 that have reported earnings for the second quarter, revenues rose 6.9 percent on average while profits jumped 42.3 percent, according to Thomson Reuters.

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