Friday, March 25, 2011

Real After-Tax Profits Reach New Record High in Q4

U.S. corporate profits reached a new record high in the fourth quarter 2010 at $1.25 trillion (at an annual rate), after taxes and adjustments for inventory valuation and capital consumption (see graph above, data here), according to today's BEA report.  Compared to the third quarter, corporate profits increased by $39.5 billion last quarter, and that makes eight straight quarterly gains in profits going back to the first quarter of 2009.  From the cyclical bottom of $774 billion of profits in the fourth quarter of 2008, profits for U.S. companies have rebounded by 61.5%, and by $476 billion.

Adjusted for inflation (using the Business Sector Deflator), real corporate profits in the fourth  quarter 2010 rose above the previous all-time record high of $1.229 trillion Q3 2006 to reach a new record high of $1.25 trillion (see red line in graph above).

3 Comments:

At 3/25/2011 10:51 AM, Blogger The Smoky Mountain Hiker said...

Mark - What do you think will happen when Quantitative Easing ends in June - in terms of GDP, Corp Profits and ultimately the stock market?

Thanks!

 
At 3/25/2011 11:44 AM, Blogger morganovich said...

anybody know how these "inventory valuation adjustments" and "capital consumption adjustments' work?

those sound a bit fishy and arbitrary to me.

i'm also left wondering how much of this is an artifact of loss carryforwards affecting tax rates.

 
At 3/25/2011 4:28 PM, Blogger Dr. T said...

Corporations have been afraid to expand for three years, and many laid off workers and haven't rehired them. Corporations hold record amounts of liquid assets. Corporate profits rose 3.3% in 2010 Q4 compared to Q3. The DJI increased 7.5% in Q4 2010. Corporate stock holdings account for much of the Q4 jump in profits.

While the increased profits are good for corporations and shareholders, they do not indicate that corporations are doing more business. There is no evidence that corporations in toto are expanding or hiring additional permanent workers. This won't change until regime uncertainty disappears. That won't happen until we get a Republican president and a Republican majority in both houses of Congress. (In other words, it may be a long wait.)

 

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