Q3 Corporate Profits: Beyond Hurricane Effects

December 5, 2005 – U.S. corporate profits from current production fell by 3.4% in Q3 (not an annual rate) according to the national income data released last week. This followed a Q2 increase of 4.6% (Chart 1).

Chart 1. Percent change in corporate profits from current production. Q1 2000 through Q3 2005.

The BEA estimates that Hurricanes Katrina and Rita reduced corporate profits by $151.2B in Q3, more than accounting for the total $45.5B profit decline (Chart 2). About half of these corporate hurricane costs took the form of net payouts made by domestic insurance companies. The balance was uninsured corporate property losses.

Chart 2. Corporate profits from current production. Billions of dollars. Q1 2000 through Q3 2005.

Excluding these hurricane costs, corporate profits rose by 7.8% (or $105.7B) in Q3.

This was the second straight year of unusually costly hurricane activity. In Q3 last year, Hurricanes Charley, Francis, Ivan and Jeanne collectively reduced corporate profits by $93B.

Hurricanes notwithstanding, the real profits of domestic non-financial corporations rose by a hefty 16.9% in the four quarters through Q3 (Chart 3).

Chart 3. Year-ago percent change in real corporate profits from current production. Q1 1949 through Q3 2005.

This four-quarter trend in profit growth has been running at double digit rates since Q3 2002. Since the start of these data in 1949, non-financial corporations have never before enjoyed such a long period of such strong profit growth.

Suzanne Rizzo