US: Corporate Profits

May 30, 2018 07:30 CDT

Actual Previous
After-tax Profits - Y/Y change 0.1% -6.0%

First-quarter corporate profits, despite getting a major boost from lower taxes, inched only 0.1 percent higher year-on-year to an after-tax $1.812 trillion annualized rate. Pre-tax profits were actually down sharply, a year-on-year 6.0 percent lower to a $2.140 trillion rate. Note that these readings are without inventory valuation or capital consumption adjustments. When including these adjustments, pretax profits were $2.200 trillion with after-tax at $1.872 trillion making for a corporate income tax rate of $328.2 billion, down from $445.6 billion in the fourth quarter and the lowest of the expansion, since third-quarter 2009.

Corporate profits are derived from the national income and product accounts and are expressed in several measures. Econoday's focus is on the most relevant measure for the total economy, after-tax profits.

Corporate profits are the lifeblood of investment spending. Profits are the income of a corporation. When profits are strong, then companies will be able to increase their capital spending. This could allow better growth prospects for a company and is likely to increase its underlying value. When corporate profits decline, then capital spending tends to decline. Without the potential for growth, a company could be at a disadvantage, particularly in our global economic environment.

Corporate profits also reveal the health of an organization. When a company's profits are anemic during economic expansion, it suggests that the company is not performing efficiently. The value of an inefficient company is determined by its stock price. Thus weak profits signal lower stock prices. When a company's profits are relatively strong, even during an economic downturn, it usually means that the organization is well-managed. The higher value for this type of company is reflected in a higher stock price.