Numbers: US corporate profits rose again in the fourth quarter and hit a record high, capping a huge increase in 2021 despite widespread supply and labor shortages that have raised costs and contributed to high inflation during the pandemic.
Adjusted pre-tax profits rose 0.7% to $2.94 trillion annualized in the final three months of last year from $2.92 trillion in the third quarterthe government announced on Wednesday.
For the full year, adjusted earnings jumped 25% – the biggest gain since 1976.
Revenues fell in 2020 after the start of the pandemic, marking the first decline in five years.
Earnings figures were released as part of the third and final regular gross domestic product update for the fourth quarter. GDP rose a revised 6.9% in the fourth quarter, down a tick from the previous estimate of 7%.
Big picture: The rapid recovery of the US economy from the pandemic boosted profits for most companies, especially large ones that were better protected from the effects of the virus.
Although companies are paying higher costs, they have still managed to increase their profits. As a result, they have more money to invest and can afford to pay workers more. Wages are rising at the fastest rate in four decades.
The government is doing it too. Federal tax revenue hit a record high in fiscal year 2021 and is on track this year to reach a new all-time high, based on early tax data.
Growth and profits in the United States, however, are expected to slow in 2021. The Federal Reserve is raising interest rates, Washington has cut pandemic-related spending, and high inflation is eating away at household incomes.
Key details: Consumer spending rose by a revised 2.5% in the fourth quarter, according to updated GDP figures. Previously, the increase was 3.1%.
Business investment and the increase in inventories were a little stronger than previously announced, which compensated for the revision in spending.
Most of the other numbers in the GDP report were little changed.
The economy grew at a rate of 5.7% in 2021, recovering from a sharp decline of 3.4% in 2020.
Look forward: “Our baseline remains that the economy will continue to grow
this year, but the pace will moderate,” wrote US Chief Economist Rubeela Farooqi of High Frequency Economics in a note to clients. “We see downside risks
geopolitical events and blockages in China.
Market reaction: The Dow Jones Industrial Average DJIA,
and S&P 500 SPX,
fell slightly in Wednesday’s trades. Stocks rallied last week after falling at the start of Russia’s invasion of Ukraine.