Q1 Corporate Profits: Booming On

May 25, 2006 – U.S. corporate profits from current production rose by 7.9% in Q1 (not an annual rate), following Q4’s huge 14.4% hurricane-related leap (Chart 1).

Chart 1. Percent change in corporate profits from current production. Q1 2000 through Q1 2006.

According to BEA estimates, the insurance payouts and uninsured corporate property losses caused by Hurricane Wilma reduced Q4 profits by $22.9B (Chart 2). The disappearance of this negative Hurricane Wilma effect added $22.9B (1.6 percentage points) to Q1 profit growth.

Chart 2. Corporate profits from current production. Q1 2000 through Q1 2006.

In Q4, the rebound from Hurricanes Katrina and Rita (which reduced Q3 corporate profits by an estimated $165.3B) more than offset the negative Hurricane Wilma effect. Thus, hurricane effects added a net $142.4B (11.4 percentage points) to profit growth in Q4.

Beyond this quarterly volatility, the basic picture hasn’t changed. Real profits of domestic non-financial corporations rose by a hefty 25.3% in Q1, compared to the same quarter last year (Chart 3).

Chart 3. Real profits from current production, domestic non-financial corporations. Year-ago percent change. Q1 1949 through Q1 2006.

This four-quarter trend has been running at double digit rates for fifteen straight quarters. We have never (since the start of these data in 1949) seen such a long stretch of such strong growth in these profits.

Bottom line: extra strong corporate profit growth should keep the economy resilient.

Suzanne Rizzo