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Wednesday, September 02, 2009

The Full Picture on Business Income

When talk focuses on business income, the number almost always analyzed is corporate profits. But there’s another part of the business income story that warrants attention, i.e., proprietors’ income.

Proprietors’ income is mainly about the income generated by sole proprietorships and partnerships.

This is anything but insignificant. In the second quarter of 2009, for example, while corporate profits registered $1.25 trillion, proprietors’ income came in at $1.03 trillion.

In fact, it is not unusual for proprietors’ income to top corporate profits in a given year. That happened, for example, in 2001 and 2002.

What’s the recent trend been?

Corporate profits recently peaked in the third quarter of 2006 at $1.66 trillion, and fell unevenly to $1.25 trillion in the second quarter of 2009. Over the last two quarters, however, corporate profits resumed some growth.

Meanwhile, proprietors’ income recently hit a high in the second quarter of 2006 at $1.13 trillion, followed by a smaller, uneven decline. Recently, though, proprietors’ income fell from $1.14 trillion in the third quarter of 2008 to $1.03 trillion in the second quarter of 2009.

Looking ahead to some kind of economic recovery, it is just as critical for the economy to see proprietors’ income growing, as it is to see corporate profits on the rise.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

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