Corporate profits

US corporate profits soar in the second quarter; increased economic growth

  • GDP growth in the second quarter revised to 6.6%
  • Corporate profits hit new record
  • Weekly jobless claims increase from 4,000 to 353,000

WASHINGTON, Aug.26 (Reuters) – U.S. corporate profits hit a new second quarter record, boosted by robust demand and higher prices, suggesting that an expected slowdown in economic growth this quarter due to the surge of COVID-19 cases could be temporary.

The profit surge reported by the Commerce Department on Thursday came despite companies facing rising costs due to raw material and labor shortages. The resurgence of infections brought on by the Delta variant of the coronavirus is reducing demand for services such as air travel and cruises, leading economists to lower their growth estimates in the third quarter.

“Based on the earnings data, any slowdown in growth due to slowing consumer spending is likely to be temporary,” said Conrad DeQuadros, senior economic advisor at Brean Capital in New York.

Profits from current production rose $ 234.5 billion, or at a quarterly rate of 9.2%, to a record $ 2.8 trillion, after growing at a 5.1% pace in the first trimester. They were driven by a $ 169.8 billion increase in the profits of domestic non-financial corporations. Gains were also recorded in the profits of domestic financial corporations as well as in the profits of the rest of the world.

Pre-tax profits as a percentage of GDP, an indicator of profit margins across the economy, increased 0.7 percentage points to 12.3%, their highest level since 2014.

Domestic after-tax profits without inventory valuation and capital consumption adjustments, conceptually the most similar to S&P 500 profits, grew $ 303.6 billion, or 12.8%, up by compared to the 9.4% rate recorded during the January-March period.

Profits were up 69.3% from a year ago, partly exaggerated by weak baseline comparisons in the second quarter of 2020 following mandatory shutdowns of non-core businesses.

“The high margins suggest that the higher costs have yet to significantly erode corporate profits, as companies appear to have more pricing power today than they typically would at the start of the year. an expansion, ”said Jay Bryson, chief economist at Wells Fargo in Charlotte, North Carolina. .

Gross domestic product grew at an annualized rate of 6.6%, the government said Thursday in its second estimate of GDP growth for the April-June period. This has been revised up from the 6.5% expansion pace reported in July.

Economists polled by Reuters expected second-quarter GDP growth to rise to 6.7%. The economy grew at a rate of 6.3% in the first quarter and recovered from the heavy losses suffered during the two months of the COVID-19 recession.

The level of GDP is now 0.8% above its peak in the fourth quarter of 2019. Upward revisions to GDP growth in the last quarter reflected a slightly stronger pace of consumer spending and business investment than initially estimated. Demand was boosted by one-off stimulus checks from the government to some middle- and low-income households.

The Federal Reserve maintained its ultra-accommodative monetary policy, keeping interest rates at historically low levels and pushing up stock prices.

The stocks were trading lower. The dollar (.DXY) appreciated against a basket of currencies. The prices of the US Treasury were mostly lower.

GDP

SPEED CUT

Consumer spending, which accounts for over two-thirds of the US economy, appears to be slowing. Credit card data suggests spending on services such as airline tickets, cruises, and hotels and motels has slowed.

“This is a slowdown due to the interaction of Delta and the constraints on the supply side,” said Michelle Meyer, chief US economist at Bank of America Securities in New York. “We still believe the fundamentals of the economy are strong and all signs point to strong underlying demand.”

Bank of America Securities reduced its estimate of GDP growth for the third quarter to a pace of 4.5% from 7.0%.

Growth is expected to accelerate in the fourth quarter, in part due to the rebuilding of business inventories, which were reduced in the first half to meet strong demand. Globally, economists are forecasting growth of around 7% this year, which would be the strongest performance since 1984.

Although the impetus given by fiscal stimulus is waning, demand remains supported by a strengthening labor market.

A separate Labor Department report on Thursday showed initial claims for state unemployment benefits rose from 4,000 to 353,000 seasonally adjusted for the week ended Aug. 21.

Adjusting the data to seasonal fluctuations is tricky at this time of year, a task that has been complicated by the pandemic. This could explain the increase in requests last week. Unadjusted claims fell from 11,699 to 297,765 last week.

Unemployment benefit claims

Companies are hanging on to their workers amid worker shortages blamed on lack of child care facilities and fear of contracting the virus. There was a record 10.1 million job postings at the end of June.

At least 25 states led by Republican governors have pulled out of federally funded unemployment programs, including a weekly payment of $ 300, which the companies say encouraged unemployed Americans to stay at home.

There is, however, no evidence that the early termination of federal benefits has resulted in an increase in hiring in these states. Government-funded benefits will expire on September 6, affecting more than 11 million people.

“While states implementing early termination have argued that the benefits hamper labor supply, we find only a marginal effect,” said Gregory Daco, chief US economist at Oxford Economics. At New York. “It appears that the expiry of benefits will weigh more on the economy’s personal income register than on supporting job growth.”

Reporting by Lucia Mutikani; Editing by Chizu Nomiyama, Paul Simao and Andrea Ricci

Our Standards: Thomson Reuters Trust Principles.


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