September 1, 2006 – In the data released this week, U.S. corporate profits from current production rose by a sturdy 3.2% in Q2 (not an annual rate) after an even stronger 12.6% gain in Q1 (Charts 1 and 2). Compared to the same quarter last year, these profits rose by 20.5% in Q2.
Among the major industry groups, domestic financial firms’ profits rose by 7.8% in Q2, and net foreign profits rose by 4% (Chart 3). Domestic non-financial profits lagged well behind the others, with Q2 growth slowing to just 0.6% (a 2.5% annual rate).
Domestic non-financial firms were apparently harder hit by the slowing in domestic demand growth. Real final sales to domestic purchasers rose at an unusually weak 1.7% annual rate in Q2, after an extra-strong 5.4% gain in Q1.
Compared to the same quarter last year, domestic non-financial firms’ profits rose by 15.6% in Q2 and their real profits rose by 11.9% (Chart 4). That’s less real growth than the 21.5% gain for the four quarters through Q1, but still exceptionally strong. For context, these real profit gains averaged 3.5% over the last ten years.
Bottom line: Profit growth slowed in Q2, but the four-quarter trend remained strong.