- U.S. corporate profits hit a record $ 495.3 billion, or an annualized rate of 27.1%, in the third quarter, as consumer demand rebounded and businesses reopened, the reports showed. Commerce Department data released Wednesday.
- The increase comes after declines of 12% and 10.3% respectively in the first and second quarters.
- The sharp rebound in profits reflects a generally gloomy picture of the country’s economic recovery. While some areas, notably housing and consumer spending, have rebounded well, labor market data, including weekly jobless claims, show lasting damage.
- The surge in the number of COVID-19 cases across the country poses an increasing risk to short-term growth, and the big banks have already revised their GDP forecasts downwards accordingly.
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US corporate profits grew at the fastest pace on record in the third quarter, as the economic reopening and rebound in demand led to higher spending.
Profits jumped $ 495.3 billion, or an annualized rate of 27.1%, over the three-month period, according to Commerce Department data released Wednesday. Domestic profits of financial corporations jumped $ 24.5 billion.
The profit increase comes after declines of 12% and 10.3% in the first and second quarters, respectively. The decline in the first quarter was the largest since the financial crisis.
The Commerce Department report details the initial rebound in economic activity as virus cases declined over the summer and businesses benefited from a rebound in consumer demand. Gross domestic product grew at an unchanged annualized rate of 33.1% during the period, a record increase that traces much of the fall in the second quarter.
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Admittedly, the recovery of the third quarter did not trace all the losses induced by the pandemic of the economy. And near-term growth forecasts have been revised down at major banks as the United States grapples with an increase in COVID-19 cases. With widespread vaccine distribution several months away, the pace of the recovery is expected to slow significantly by the end of the year and early 2021.
“More than ever, we need to be aware that global economic figures tell only a partial story,” said Gregory Daco, chief US economist at Oxford Economics. “While a double dip in the first quarter of 2021 seemed unlikely just a few weeks ago, it is a sad but not insignificant possibility today.”
The corporate earnings data joins a host of other indicators that together paint a blurry picture of the trajectory of the US economy. Consumer spending rose 0.5% in October, narrowly beating economists’ estimates. Still, personal income fell 0.7%, more than expected.
The housing market continues to show strength as new home sales edged down to a consistently high annualized rate of 999,000. That reading exceeded the median estimate of 975,000 from economists polled by Bloomberg.
But the labor market recovery stumbled again as jobless claims rose for the second week in a row. New jobless claims hit 778,000 last week, greatly exceeding the estimate of 730,000. The rambling nature of the recovery suggests that the coronavirus resurgence will prevent the United States from staging a full rebound in the economy. months to come.
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