(FORTUNE Magazine) – Like Old Man River, corporate America's profits seem a force of nature by now--rolling along mightily from one year to the next. Earnings of companies in the FORTUNE 500 rose 13.4% in 1995, the fourth straight year of double-digit increases (excluding 1992-93 write-offs for retiree health benefits). The latest results are especially impressive because the U.S. economy grew only 2% last year, and inflation was just 2.8%. Also noteworthy: the broad swath of industries where profits surged, from heavy manufacturing to high tech to financial services. GM, No. 1 on the FORTUNE 500, saw earnings rise 40% last year, on top of a gangbuster 99% increase the year before.

Such strides in performance are raising eyebrows, and not just among investors. Immediately following this introduction, we examine the public and political backlash against rising corporate profitability and then take a closer look at what is really driving these historically high returns. The answers might surprise you.

This year's 500 ranking, which begins on page F-1, also shows that not all news was good news. One of the big exceptions to the strong showing is the general merchandise industry, where companies threw up too many new stores, resulting in more competition and lower profits (down 19%). Retailing also nabbed the distinction of including the worst investment among the 500: Caldor, which had a negative 85% return to investors (total return and market value calculations used data provided by Peerscape, a service of Deloitte & Touche).

Another big exception to the boom in profits: telephone companies, which prepared for decreased regulation by slashing their work forces and taking huge write-offs. AT&T alone took a $6 billion hit, causing a 97% decline in profits.

But it wasn't just the headline grabbers that squeezed employee rolls. Read no further than the first page of our FORTUNE 1,000 industry comparisons (page F-43)--the aerospace group saw revenues rise just 5% last year, but profits took off by 22% as employment dipped 1%. Even electric and gas utilities, hardly the most dynamic and competitive sector of the U.S. economy, reduced the number of jobs by 3% while increasing profits.

Indeed, the driving force of this five-year-old business expansion has been corporate restructuring. Will it continue? Most economists and stock market strategists think corporate managers have about run out of ways to make their organizations more efficient. Even so, NatWest Securities chief strategist Peter Canelo believes earnings will again grow at double-digit rates this year because the economy is picking up briskly, the consensus "worrywarts" notwithstanding. Rising domestic and foreign demand will benefit a broad array of industries, including cyclical groups such as metals and machinery producers, he says. As support for his view, Canelo points to the recent rise in oil prices. FORTUNE 500 petroleum companies last year turned in one of the worst profit performances of any group--median profits fell 4%--as crude prices remained subdued. But with oil lately fetching the highest prices since the Gulf war, industry profits should gush.

More certain than the outlook for profits is the way the economy is evolving toward services and high-tech industries. Consider the employment gains and losses on this year's list. The number of people working for FORTUNE 500 companies rose a barely perceptible 0.2% in 1995, skimpy gains given the robust 9.9% rise in revenues. But check out the right industries, and there was hiring aplenty: computer hardware employees, up 11%; computer services and software, up 14%; health care, up 25%; entertainment, up 13%. Oh, yes, and the number of workers on temp-agency payrolls jumped 13%. That, too, looks fundamental to the evolutionary process.

--Joe Spiers

THE 500 LIST BEGINS ON PAGE F-1