Corporate Profits Plunge, Minor Q4 GDP Revisions
Real GDP is estimated to have dropped at an annual rate of 6.3% in the fourth quarter of 2008. This is virtually unchanged from the earlier estimate of a 6.2% drop of real GDP. In 2008, real GDP increased 1.1% after a 2.03% increase in 2007. On a Q4-to-Q4 basis, the 0.85% drop in real GDP in the fourth quarter is the first decline in real GDP since the 1990-91 recession. The economy is expected to post another sharp quarterly reduction in real GDP in the first quarter of 2009 (-6.1%), with these two quarterly declines chalking up to be the weakest quarters of the current recession.
Among the revisions, the three large changes were from net exports (-$364.5 billion vs. -$372.9 billion), inventories (-$25.8 billion vs. -$19.9 billion), and the 9.4% drop in structures outlays vs. the earlier estimate of a 5.9% decline.
The important new information in this report was with regard to corporate profits, which fell as expected. Corporate profits dropped 16.5% in the fourth quarter, which is the largest quarterly decline since the fourth quarter of 1953.
The financial sector (-59.4%) was responsible for a large part of the decline of corporate profits in the fourth quarter (see chart 4).
Operations abroad made a positive contribution to overall corporate profits while domestic industries posted a setback (see chart 5).
Corporate profits as a percent of GDP was shockingly small in the 1981-82 recession. The percentage point decline in profits as share of GDP is noticeably large (4.0 percentage points) in the current recession, with larger declines recorded in the 1969-70 (4.6 percentage points) and 1953-54 (4.3 percentage points) recessions (see chart 6).
Jobless Claims – Persistent Upward Trend Remains in Place
Initial jobless claims increased 8,000 to 652,000 during the week ended March 21. Continuing claims, which lag initial claims by one week, rose 118,000 to 5.556 million and the insured unemployment rate moved up further to 4.2%. The 4.2% rate is the highest since May 1983. Charts 7-9 speak for themselves about the dire status of the labor market.
