US corporate profits plunge US$120bil in fourth quarter

Saturday March 28, 2009
US corporate profits plunge US$120bil in fourth quarter


US corporate profits plunged a record US$120.1bil in the fourth quarter as the economy shrank at its fastest pace since 1982, depressed by a slump in consumer spending and exports, government data showed on Thursday.

In another snapshot of the distressed economy, the number of workers collecting state jobless benefits rose to a record 5.56 million earlier this month, while new claims climbed to 652,000 last week, according to a separate government report.

“It is indicative of the sharp decline in overall economic activity experienced in the fourth quarter,” said Joseph Brusuelas, an economist at Moody’s Economy.com in West Chester, Pennsylvania, speaking of the drop in corporate profits.

The Commerce Department said after-tax corporate profits dropped 10.7% in the fourth quarter, the largest decline since the first quarter of 1994. Profits fell US$5.2bil in the third quarter.

Domestic profits of financial firms skidded US$178.7bil, compared with a US$75.5bil decline in the third quarter. Non-financial corporations’ domestic profits tumbled US$89.1bil in the fourth quarter after increasing US$52.1bil in the prior period.

Shrinking profits came as gross domestic product, which measures the total output of goods and services within US borders, fell at an annual rate of 6.3% in the October-December quarter.

This was the steepest decline since the first quarter of 1982.

But analysts said the October-to-December quarter was probably the worst of the 15-month recession and they expect the economy to start stabilising, although first-quarter output would still show another deep fall.

“We think that the decline in GDP reached its trough in the fourth quarter. GDP will not decline again as fast as it did in the fourth quarter,” said Zach Pandl, an economist at Nomura Securities International in New York.

The government last month estimated the drop in fourth-quarter GDP at 6.2% and the modest revisions to the output estimates reflect adjustments to business inventories and investment figures. – Reuters