U.S Corporate Profits Rose in Second Quarter, GDP Growth Revised Lower
26 August 2016 - 11:00PM
Dow Jones News
By Ben Leubsdorf and Josh Mitchell
WASHINGTON--A key measure of corporate profits rose this spring
for a second straight quarter alongside modest growth in the
overall economy, though U.S. businesses remain under pressure from
global weakness and other forces.
Corporate profits after tax, without inventory valuation and
capital consumption adjustments, rose 4.9% from the prior quarter
to a seasonally adjusted annual level of $1.627 trillion in the
second quarter, the Commerce Department said Friday. Profits had
jumped 8.9% in the first three months of 2016, after dropping in
three of the previous four quarters.
The broad trend remains weak. In the second quarter, profits
were down 2.2% compared with a year earlier. And an alternative
measure, pretax profits with inventory valuation and capital
consumption adjustments, declined 1.2% in the second quarter from
the prior three months.
Overall economic growth remained subdued in the spring. Gross
domestic product, a broad measure of goods and services produced
across the economy, expanded at an inflation-adjusted 1.1%
seasonally adjusted annual rate in the second quarter, according to
Friday's report. That down slightly from last month's initial
estimate of a 1.2% growth pace.
Economists surveyed by The Wall Street Journal expected revised
GDP growth at a 1.1% pace for the April to June period. Output had
expanded at a 0.8% pace in the first quarter following the fourth
quarter's growth rate of 0.9%.
Growth in consumer spending this spring was revised up slightly,
offset by larger declines than had been previously estimated for
residential construction and spending by state and local
governments.
After a weak first half of 2016, overall growth was poised to
accelerate over the summer. Forecasting firm Macroeconomic Advisers
on Thursday estimated GDP would grow at a 3.1% annual pace in the
third quarter.
Despite modest output growth, the U.S. economy had continued to
add jobs at a solid pace. Through July, nonfarm payrolls rose this
year by an average of 186,000 per month, somewhat slower than last
year's average pace of 229,000, according to the Labor Department.
The unemployment rate was 4.9% in July and has hovered at or below
5% for most of the past year.
With work hours increasing faster than output, U.S. productivity
has fallen in each of the past three quarters, the longest stretch
of declining productivity since 1979, according to Labor Department
data. That's a worrisome trend that could restrain wage gains and
overall economic growth in the coming years.
The productivity slowdown of the past decade, if it continues,
"would have wide-ranging consequences for employment, wage growth
and economic policy more broadly," Federal Reserve Vice Chairman
Stanley Fischer said last weekend. "For example, the frustratingly
slow pace of real wage gains seen during the recent expansion
likely partly reflects the slow growth in productivity."
Weak business investment could be one factor behind sluggish
productivity as firms pull back on purchases of new equipment and
other products that could help boost their workers' efficiency. In
the second quarter, fixed nonresidential investment fell at a 0.9%
annual rate, its third consecutive quarterly decline.
The Commerce Department had initially estimated a steeper drop
in business investment last quarter; the latest report revised up
estimated spending on research and development and other
intellectual property products.
There are some tentative signs of stabilization for business
investment in new equipment. New orders for nondefense capital
goods excluding aircraft rose in June and July, according to the
Commerce Department, though 2016 orders to date remain down
compared with last year.
"Although I expect business fixed investment to begin to grow
again in the second half, it will likely remain soft as profits
have stagnated and election year uncertainty could act as an
additional depressant," Federal Reserve Bank of New York President
William Dudley said in a July 31 speech.
Residential investment, private inventories and government
expenditures also dragged down overall U.S. growth in the second
quarter.
Consumer spending remained the economy's driving force, with
household outlays rising at a 4.4% pace last quarter--up from an
earlier estimate of growth at a 4.2% annual rate. That was the
largest increase in household outlays since late 2014.
Profits at U.S. corporations have been stressed in recent years
by the strong dollar, which makes U.S.-made products more expensive
for foreign customers, and low oil prices that have hammered the
domestic energy industry.
The dollar and oil prices have stabilized in recent months but
margins could be squeezed going forward by weak global growth,
rising labor costs and other forces.
The Commerce Department in July released revised
corporate-profits figures for the past few years, incorporating new
data from tax records and other sources. The revised figures show
after-tax unadjusted profits rose 2.5% in 2014 before falling 8.5%
in 2015.
The Commerce Department's latest report on U.S. gross domestic
product can be accessed at:
http://bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm
Write to Ben Leubsdorf at ben.leubsdorf@wsj.com and Josh
Mitchell at joshua.mitchell@wsj.com
(END) Dow Jones Newswires
August 26, 2016 08:45 ET (12:45 GMT)
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