Returns for Domestic Nonfinancial Business

By Bonnie A. Retus and Marina Rouleau  |  April 22, 2025

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Once a year, the U.S. Bureau of Economic Analysis (BEA) reports on sector rates of return for domestic nonfinancial corporations, for nonfinancial industries, and for 14 major nonfinancial industry sectors, including mining, utilities, construction, manufacturing, wholesale trade, and retail trade. These broad measures of profitability, based on returns on produced assets, may be useful to economists and policymakers. Industry sector and corporate business rates of return are available through 2023; these rates of return reflect revised statistics from the 2023 comprehensive and 2024 annual updates of the National Income and Product Accounts (NIPAs) and the Industry Economic Accounts (IEAs).¹ Various Tobin’s Q ratios, which compare the financial market value of assets with the replacement-cost value of produced assets, are also presented in this article.

The rates of return presented in this article are calculated as the ratio of the net operating surplus to the net stock of produced assets.² The net operating surplus reflects the return to capital and is presented in table A. Produced assets are presented in table B. For nonfinancial corporations, the net operating surplus reflects statistics from the NIPAs and is defined as the sum of corporate profits from current production, net interest payments, and net business current transfer payments.³ The net operating surplus for nonfinancial industries reflects statistics from the IEAs and is a broader concept that includes proprietors' income. For both nonfinancial corporations and nonfinancial industries, the statistics on net stock of produced assets are from BEA's fixed assets accounts. To calculate the Q ratios, additional statistics on financial market values are drawn from the Federal Reserve Board's Financial Accounts of the United States.

Nonfinancial corporate rates of return decreased on a before- and after-tax basis in 2023. The after-tax rate of return was 8.8 percent in 2023, a decrease of 0.4 percentage point from 2022 (chart 1 and table C). The before-tax rate of return was 10.6 percent in 2023, a decrease of 0.5 percentage point. Since 1970, before-tax rates of return have ranged from 6.9 percent in both 1982 and 2001 to 11.3 percent in 2021. In the 1960s, average rates of return were higher, peaking at 13.6 percent in 1965 and 1966. Net operating surplus as a share of net value added decreased on a before- and after-tax basis in 2023 (table D).

Other measures of profitability—such as BEA's measure of corporate profits from current production—increased in 2023. The measures presented in this article exclude the volatile financial sector and compare returns of nonfinancial corporations with their assets rather than with gross domestic product.

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Rates of return can also be calculated for industry sectors using statistics from the IEAs, which provide annual statistics for 71 industries that together account for all U.S. economic activity. Similar to the method used to calculate the rates for nonfinancial corporations, the rates of return for industry sectors are calculated as the net operating surplus divided by the net stock of produced assets. For nonfinancial industries, net operating surplus as a share of net value added is calculated as net operating surplus divided by net value added. The balance for each published sector represents the share of net value added attributable to compensation of employees and taxes on production and imports less subsidies.

Similar to the net operating surplus of nonfinancial corporations, the net operating surplus of nonfinancial industries reflects corporate profits from current production, business transfer payments (net), and net interest payments. However, as noted, it also reflects proprietors' income, which includes the income of sole proprietorships and partnerships. For this article, the housing component of the real estate sector, which includes owner-occupied housing, is excluded from the nonfinancial industry statistics to allow for a better comparison with the nonfinancial corporate returns data, which do not reflect home ownership.

Much of the difference between the sum of the nonfinancial industries rates of return and the corresponding corporate rates of return can be attributed to the inclusion of proprietors' income in the industry net operating surplus. However, several statistical differences between the IEAs and the NIPAs also affect the estimates. Notably, all IEA statistics are presented on an establishment basis, whereas the NIPA measure of corporate nonfinancial net operating surplus is presented on a company basis. As a result, the nonfinancial industry measures reflect adjustments that (1) exclude the financial services-producing establishments of primarily nonfinancial corporations and (2) include the nonfinancial services-producing establishments of primarily financial corporations. In addition, the IEA net operating statistics also include a share of the NIPA statistical discrepancy. The annual patterns of change for the IEA nonfinancial industries aggregate rate of return and the NIPA nonfinancial corporate rate of return of each are similar but diverge for the most recent year (chart 2).

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The overall rate of return for nonfinancial industries in 2023 was 14.3 percent, an increase of 0.3 percentage point from the 2022 rate (table C). Net operating surplus as a share of net value added increased 0.8 percentage point to 30.2 percent after a decrease of 1.7 percentage points in 2022 (table D).

This article presents a disaggregation of the rates of return for several industry groups—for example, manufacturing, transportation and warehousing, information, and professional and business services, among others (table C).

After a period of volatility in 2020 and 2021 associated with the COVID–19 pandemic, marked by a record high rate of return for total nonfinancial industries in 2021 of 14.8 percent, the statistics show continued stability.⁴ During 2023, higher rates of return can be seen in 8 of the 14 industry groups, compared to 2022. The largest increase, of 3.1 percentage points, came in arts, entertainment, recreation, accommodation, and food services, followed by construction and professional and business services, which increased 2.9 percentage points and 2.2 percentage points, respectively. Returns for mining decreased 3.6 percentage points, and agriculture, forestry, fishing, and hunting decreased 3.4 percentage points. Highlights include the following, some of which are shown in chart 3:

• Following a decline in 2020, the rate of return for arts, entertainment, recreation, accommodation, and food services increased to 18.7 percent in 2021. This is the highest level in the time series. Nonetheless, the average rate of return for 2020–2023 (13.8 percent) is in line with the average rate of return in the 10 years since 2010 (13.7 percent).
• The rate of return for transportation and warehousing, which includes air transportation and truck transportation, rebounded from 8.0 percent in 2020 and remained consistently higher than in all the previous years in the time series. The historic high rate of return in 2022 of 12.2 percent was followed by a decrease of 1.2 percentage points in 2023.

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• Following a decline in 2020, the rate of return for arts, entertainment, recreation, accommodation, and food services increased to 18.7 percent in 2021. This is the highest level in the time series. Nonetheless, the average rate of return for 2020–2023 (13.8 percent) is in line with the average rate of return in the 10 years since 2010 (13.7 percent).
• The rate of return for transportation and warehousing, which includes air transportation and truck transportation, rebounded from 8.0 percent in 2020 and remained consistently higher than in all the previous years in the time series. The historic high rate of return in 2022 of 12.2 percent was followed by a decrease of 1.2 percentage points in 2023.
• The mining industry, which includes oil and gas extraction, had a negative rate of return in 2020. The rate turned positive in 2021, increasing 7.4 percentage points to 4.9 percent. In 2022 the rate increased again to 9.1 percent. This is the highest in the time series since 2008, when it was 9.5 percent. The rate has continued to stay positive through 2023.
• The rate of return for construction dampened since its peak in 2020 of 97.6 percent. In subsequent years, the rate of return decreased to 87.3 percent and 77.4 percent in 2021 and 2022, respectively, while increasing to 80.3 percent in 2023.
• Agriculture, forestry, fishing, and hunting increased 4.0 percentage points in 2021 to show a rate of return of 13.3 percent. The 2021 increase is the largest in the time series. This was followed by a near historic high of 15.1 percent in 2022. The two larger rates of return were 15.6 percent and 15.2 percent in 2004 and 2013, respectively.
• Like transportation and warehousing, the rate of return for retail trade since 2020 has remained consistently higher than in all the previous years in the time series. The average rate of return for retail trade between 2020 and 2023 was 14.9 percent, compared to an average rate of return of 9.5 percent between 2003 and 2023.

Tobin's Q, or simply “Q,” is the ratio of financial-market valuation of corporate assets to the current-cost value of the assets. A Q ratio above 1 indicates that financial markets value corporate assets above their replacement cost; as a Q ratio rises above 1, companies may be more inclined to make direct investments in plant and equipment. A value of Q below 1 indicates that the financial markets value corporate assets below the replacement cost; as Q falls below 1, companies may be more inclined to buy other companies for their capacity rather than make direct investments.

The three Q-type ratios for domestic nonfinancial corporations presented here are defined as follows:

• Q1 is calculated as the market value of outstanding equity divided by the net stock of produced assets.
• Q2 adds the book value of outstanding corporate bonds to the numerator used in Q1. The inclusion of bonds makes Q2 a more complete measure of invested capital, but including them at historical cost is clearly inconsistent with the underlying rationale for Q, which is to provide a comparison of market valuation with replacement cost.
• Q3 adds an estimate of the market value of outstanding corporate bonds and net liquid assets to the numerator used in Q1.⁵

All three Q ratios increased in 2023 (chart 4 and table E) after decreasing in 2022, remaining above their lows reached in 2008, when they fell below 1, partly reflecting recession-related stock market declines. In this year's calculation of the Q3 ratio, net liquid assets was revised due to the revised treatment of “Nonfinancial corporate business unidentified miscellaneous assets and liabilities” in the Federal Reserve Board's financial accounts.^{6, 7}

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