U.S. Corporate Profits Gathered Steam in 4th Quarter -- 2nd Update
31 March 2017 - 3:13AM
Dow Jones News
By Ben Leubsdorf
U.S. corporate profits extended their rebound in late 2016 as
the broader economy remained on a trajectory of steady, modest
growth.
A measure of after-tax corporate profits jumped 22.3% in the
fourth quarter compared with a year earlier, the Commerce
Department reported Thursday. The measure's strongest
year-over-year gain in nearly five years partly reflected a low
base in the final months of 2015, when earnings plunged amid a
slump in energy prices, weakness in the manufacturing sector and BP
PLC's massive settlement with the U.S. government over the 2010
Deepwater Horizon oil spill in the Gulf of Mexico.
As a share of the total economy, profits were 9.2% of gross
domestic product in the fourth quarter, below record levels seen
earlier in the expansion but up from 7.8% a year earlier.
It is "a good recovery from the bottom, but we are not back to
where we were," said Howard Silverblatt, senior index analyst at
S&P Dow Jones Indices.
Earnings deteriorated in 2015 as exporters, energy companies and
other firms were pressured by forces including a strong dollar,
falling commodity prices and weak global growth. But oil prices
stabilized last year and the global outlook has brightened, helping
bolster U.S. businesses.
For all of 2016, profits rose 4.3% after falling 8.5% in 2015.
In the fourth quarter, profits climbed 3.7% from the prior three
months -- the fourth consecutive quarter of growth.
Looking forward, corporate profits are expected to continue
firming. Mr. Silverblatt said companies in the S&P 500 are
estimated to post year-over-year earnings growth of 21.7% in the
first quarter, with more moderate gains going forward.
The stock market's rally since November "definitely had some
merit to it, because earnings were already getting better," he
said, though he said it is also owed much to expectations about tax
cuts and other policy changes under the new Trump
administration.
Overall U.S. economic growth in the fourth quarter was revised
up from earlier estimates. GDP, a broad measure of the goods and
services produced across the economy, expanded at an inflation- and
seasonally-adjusted annual rate of 2.1% in the final three months
of 2016, according to Thursday's report. The government had earlier
estimated growth at a 1.9% pace.
Consumer spending in the fourth quarter was stronger than
previously thought, offset in part by downward revisions for
business investment, net exports and spending by state and local
governments.
Thursday's report "paints a picture of a healthy consumer,
likely fueled by ongoing gains in employment, modest increases in
wages, and solid balance sheets," Barclays economist Blerina Uruci
said in a note to clients. "However, fixed investment remains
soft."
U.S. economic activity has appeared to decelerate in the current
quarter, depressed by a widening trade gap and soft consumer
spending. Some economists also think seasonal-adjustment problems
have caused first-quarter growth to look weaker than the true trend
in recent years.
The first quarter ends Friday, and the U.S. government will
release its initial estimate for first-quarter GDP on April 28.
Forecasting firm Macroeconomic Advisers on Thursday projected a
first-quarter growth rate of 1.1%.
U.S. growth has averaged 2.1% since the recession ended in
mid-2009. Many economists believe underlying forces, including
sluggish productivity gains and the aging of the U.S. workforce,
will continue to constrain growth in the coming years. The median
projection by Federal Reserve policy makers in mid-March saw the
economy's long-run growth rate at 1.8% a year.
President Donald Trump, who took office in January, has said he
wants to boost annual economic growth to 4% through a combination
of tax cuts, regulatory rollbacks and other policy changes. Gauges
of U.S. consumer and business sentiment have surged since the
November election. But there has been little sign of acceleration
in hard data on economic activity, and some economists are
skeptical about the prospect of a significant and sustained boost
for growth.
Write to Ben Leubsdorf at ben.leubsdorf@wsj.com
(END) Dow Jones Newswires
March 30, 2017 11:58 ET (15:58 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
Bp (LSE:BP.)
Historical Stock Chart
From Apr 2024 to May 2024
Bp (LSE:BP.)
Historical Stock Chart
From May 2023 to May 2024