Honey, they shrunk the economy—but not the profits

Posted: 29 May 2015 in Uncategorized
Tags: , , ,

fredgraph

The U.S. economy (measured in terms of total output or GDP) shrank in the first quarter of 2015—declining by 0.7 percent, which overturned the preliminary estimate of an increase of 0.2 percent that was reported last month.

But corporate profits (after tax, without inventory valuation and capital consumption adjustments) continued to rebound, rising 3.1 percent in the first quarter of 2015 from the fourth quarter of 2014, after falling 3 percent in the prior period. Even more dramatic, profits were up 9.2 percent from the same quarter a year earlier, the biggest increase since 2012.

Given the reported decline in economic growth, we can expect renewed debate about the statistical quirks in government data (having to do with seasonable adjustments and the like). But the real debate should be about the fundamental unevenness of the current recovery—with corporate profits soaring and everyone else being left behind.

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