Operating expenses for US investment-grade companies jumped by more than $73 billion in the third quarter of 2024 to reach the second-highest level in nearly three years, according to the latest S&P Global Market Intelligence data. Despite this increase, the expense-to-revenue ratios continue to trend lower.

Total third-quarter operating expenses for US companies rated BBB- or higher by S&P Global Ratings grew to $3.052 trillion. Most of the 10 sectors in the survey reported an increase in operating expenses from the previous quarter. Only information technology, consumer staples and communication services reported decreases.

Operating expenses, which include rent, employee pay, office supplies, equipment and other non-capital expenditures, have generally trended higher in the last few years. This metric reached a recent peak of more than $3.700 trillion for all rated US companies in the fourth quarter of 2023.

For non-investment-grade companies, however, total operating expenses fell by more than $19 billion to $609.86 billion. A nearly $57 billion drop in operating expenses for consumer discretionary companies — as well as smaller drops in materials, industrials and energy sectors — offset rising expenses in six other sectors.

Ratios

Still, the jump in operating expenses coincided with rising revenues, which reduced the proportion of costs relative to revenues quarter by quarter. For the median investment-grade US company, the ratio of operating expenses to total revenue decreased to 82.25% in the third quarter from 82.43% in the second quarter. Ratios have trended lower since at least early 2022.

Among investment-grade sectors, seven sectors reported a drop in the median ratio of operating expenses to total revenue. Ratios rose by 2.22 percentage points in consumer discretionary, 0.57 percentage point in communication services and 1.51 percentage points in healthcare.

For lower-rated companies, the median company-reported operating expenses as a share of total revenue fell by 0.46 percentage point to 89.85%. The ratio most recently peaked at 92.42% in the first quarter of 2024.

The same metric fell in all but three non-investment-grade sectors: materials, real estate and utilities.