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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).
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.
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).
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