Corporate Profits: More Strong Growth in Q3

November 30, 2006 – According to yesterday’s data release, U.S. corporate profits from current production rose by 4.2% in Q3 (not an annual rate) after 1.4% growth in Q2 (Charts 1 and 2).

Chart 1. Corporate profits from current production. Quarterly percent change. First quarter 2000 through third quarter 2006.

Chart 2. Corporate profits from current production. Billions of dollars. First quarter 2000 through third quarter 2006.

Compared to the same quarter last year, real corporate profits from current production rose by 27.2% in Q3 (Chart 3). However, this strength in year-ago profit growth is somewhat misleading, because corporate profits were temporarily depressed by Hurricane Katrina in Q3 last year.

Chart 3. Corporate profits from current production. Year-ago percent change. First quarter 1960 through third quarter 2006.

According to the BEA, Hurricane Katrina reduced nominal profits by about $165B in Q3 last year. Without this Hurricane-Katrina effect, real profits would have risen by about 12.5% in Q3, compared to the year-ago quarter. That’s not as spectacular as the actual increase, but it does qualify as very good profit growth.

Suzanne Rizzo

Sources:

U.S. Department of Commerce, Bureau of Economic Analysis (http://www.bea.gov) - corporate profits and related information, the chained GDP price index (used to calculate real profits).
National Bureau of Economic Research (http://www.nber.org) - recession dates.