(Bloomberg) – U.S. corporate profits fell in the biggest first quarter in nearly two years as some companies struggled to offset soaring costs, while the overall economy contracted in during the period.
Inflation-adjusted gross domestic product fell at an annualized rate of 1.5% in the January-March period, from an originally reported decline of 1.4%, Commerce Department data showed Thursday. Consumer spending, which accounts for the majority of the economy, grew at an upwardly revised rate of 3.1%.
The report also included the first reading of corporate earnings for the period. Pre-tax corporate profits fell 2.3% annualized from the previous quarter and rose 12.5% from a year earlier. Last year was the most profitable year for American companies since 1950.
Faced with rising costs for materials, shipping, and labor, many companies have sought to pass these expenses on to their customers through higher selling prices. However, input costs continue to rise and consumers have struggled with high inflation for decades.
Over the past few weeks, retailers like Target Corp. and Walmart Inc. cut their profit forecasts this year amid bloated inventories and price increases that failed to keep up with rising costs.
Despite the drop in GDP, the first quarter figures belie a solid pace of consumption. The contraction largely reflects a surge in imports, linked to strong consumer demand.
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