EconoMonitor

Ed Dolan's Econ Blog

US Corporate Profits Rebound from Winter Slump as GDP Growth Looks Even Stronger than Thought

The latest data from the Bureau of Economic Analysis show that US GDP grew at a 4.2 percent annual rate in the second quarter of 2014, even more strongly than previously reported. Corporate profits showed the beginnings of a rebound from their winter slump.

Although they remain short of the all-time highs reached over the previous two years, the following chart shows that corporate profits, as a percentage of GDP, remain above their peak levels of the pre-recession boom. Proprietors’ income, which reflects the net earnings of small businesses, also grew strongly in the quarter.

The details of GDP growth, as shown in the following table, look better even than the headline number. A 2.64 percentage point contribution by investment, slightly greater than the advance estimate had shown, was the biggest component of growth for Q2. What is more, a larger share of investment growth came from fixed investment, and less from inventory growth, than in the previous report. Business equipment, business structures, and residential construction all showed healthy growth.

The contributions of consumption and government were both positive, although little changed from the advance estimate. All of the government growth came from the state and local level; the contribution to GDP growth from the federal government was fractionally negative.

The performance of exports was particularly impressive. As the next chart shows, exports were a bright spot in the early years of the recovery, but their contribution began to fade in late 2012. The latest data, which were the strongest since the end of 2010, suggest that the winter slump was an aberration and export growth is back on track. That is all the more impressive, given weaknesses in European trading partners and gradually slowing growth in China.

If the next week’s report on the August employment situation is as strong as July’s, we can expect to see continued healthy GDP growth when the advance estimate for Q3 comes out at the end of October.

 

One Response to “US Corporate Profits Rebound from Winter Slump as GDP Growth Looks Even Stronger than Thought”

pgdolanAugust 29th, 2014 at 12:00 pm

This is great news! I look forward to more and also Ed´s assessment of the economic impact of US involvement in the Ukraine and against the IS-god warriors in Iraq and Syria.