Corporate Profits in Q4: Booming On

March 30, 2006 – U.S. corporate profits from current production rose by a huge 14.4% in Q4 (not an annual rate), rebounding strongly after a hurricane-driven decline of 4% in Q3 (Chart 1).

Chart 1. Corporate profits from current production. Quarterly percent change. Q1 2000 through Q4 2005.

According to BEA estimates, Hurricane Wilma reduced Q4 profits by $22.9B (Chart 2). But, Hurricanes Katrina and Rita together subtracted a much larger toll of $165.3B from profits in Q3. Thus, hurricane effects added a net $142.4B to Q4 profit growth.

Chart 2. Corporate profits from current production. Billions of dollars. Q1 2000 through Q4 2005.

Excluding these hurricane effects, corporate profit growth slowed to 3% in Q4 after an 8.2% gain in Q3 – more in line with the temporary slowing in Q4 real GDP growth.

Beyond the quarterly volatility, the basic message hasn’t changed. Real profits of domestic non-financial corporations rose by a hefty 23% in Q4, compared to the same quarter last year – still booming along at double digit rates for the fourteenth quarter (Chart 3).

Chart 3. Real corporate profits from current production, domestic non-financial corporations. Year-ago percent change. Q1 1949 through Q4 2005.

We’ve seen stronger growth than this for short periods of time, but we have never before (since the start of these data in 1949) seen such a long stretch of such strong growth in these profits.

Suzanne Rizzo