WASHINGTON (MarketWatch) – Corporate profits fell 3.2% in 2015 to mark the first drop since the Great Recession, adding further weight to a slow-growing U.S. economy.
American businesses have been squeezed by falling exports, cheaper imports and continued caution from cost-conscious consumers. Firms also incurred higher labor costs.
Adjusted pre-tax profits fell 7.8% in the fourth quarter, the Commerce Department said on Friday. Earnings figures are adjusted for depreciation and inventory value.
Adjusted earnings fell 3.2% for the whole of 2015. In contrast, they rose 1.7% in 2014, 1.9% in 2013 and 9.1% in 2012.
The fall in annual profits last year was the first since 2008, when the United States was in the midst of the worst recession since the 1930s. Energy companies have been particularly hard hit by falling oil prices, while manufacturers have been battered by a stronger dollar which makes it harder to sell goods overseas.
Weak earnings are calling into question the ability of companies to continue to hire new workers at a rapid pace, increase investment and sustain a nearly seven-year-old economic recovery.
The first review of fourth quarter profits was included in the government’s second gross domestic product revision in the final months of 2015. GDP was raised to 1.4% from a previous estimate of 1%, almost entirely due to increased consumer spending on recreation and transportation. . These costs could include car insurance as well as shipping services provided by UPS and Fedex.
Consumer spending grew at an annual rate of 2.4% in the last three months of 2015, up from a previous estimate of 2%.
“Consumer spending and housing are keeping the economy going,” said Nariman Behravesh, chief economist at IHS Global Insight.
US exports, meanwhile, fell 2% instead of 2.7%. The drop in imports was little changed at 0.7%.
The increase in the value of inventories, which adds to GDP, was reduced to $78.3 billion from $81.7 billion.
Most other numbers in the latest GDP revision were little changed. Construction spending rose, business investment fell, and government spending remained virtually unchanged.
The government initially estimated that the economy grew by only 0.7% in the fourth quarter.