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May 25, 2006 – U.S. corporate profits from current production rose by 7.9% in Q1 (not an annual rate), following Q4’s huge 14.4% hurricane-related leap (Chart 1).
According to BEA estimates, the insurance payouts and uninsured corporate property losses caused by Hurricane Wilma reduced Q4 profits by $22.9B (Chart 2). The disappearance of this negative Hurricane Wilma effect added $22.9B (1.6 percentage points) to Q1 profit growth.
In Q4, the rebound from Hurricanes Katrina and Rita (which reduced Q3 corporate profits by an estimated $165.3B) more than offset the negative Hurricane Wilma effect. Thus, hurricane effects added a net $142.4B (11.4 percentage points) to profit growth in Q4.
Beyond this quarterly volatility, the basic picture hasn’t changed. Real profits of domestic non-financial corporations rose by a hefty 25.3% in Q1, compared to the same quarter last year (Chart 3).
This four-quarter trend has been running at double digit rates for fifteen straight quarters. We have never (since the start of these data in 1949) seen such a long stretch of such strong growth in these profits.
Bottom line: extra strong corporate profit growth should keep the economy resilient.
Suzanne Rizzo