Corporate Profits Growing Despite Stagflation

There is a growing gap between the size of corporate profits and the growth of the United States economy.  Analysts [...]

May 23 2011 by ChiefExecutive.net


There is a growing gap between the size of corporate profits and the growth of the United States economy.  Analysts had expected GDP to grow by 2.2% in the first quarter, but the reality was even slower.  Adjusted for inflation, America’s GDP rose only 1.8% — a significant drop from Q4 2010’s 3.1% growth.

Company profits, however, reached a record high (since  the Commerce Department started recording corporate profits in 1947).  American corporations raked in profits of $1.7 trillion in the first quarter (on an annualized basis), a number that still reached $1.45 trillion after taxes.  This 5.9% growth in profit is far out of line with the GDP’s 1.8% growth.

Along with weak gains in GDP, the hiring climate remains hostile.  Analysts had predicted that jobless claims last week would drop by 4000 when in reality they grew by 10,000.

Many economists are expecting that the economy will pick up in the second quarter. The responses to Chief Executive’s CEO Confidence Index for April of 2011, however, expect otherwise.  CEOs rated April’s business conditions a 5.3 out of 10, a score that does not qualify as ‘good.’ In March and April, 41% and 49% of CEOs expected to grow their workforce over the next 12 months, but this growth was expected to be by less than 10%.  Also in March and April, 47% and 33.7% expected not to see any change in size of workforce.

In April, 44% of CEOs expected that over the next 12 months their capital expenditures would remain the same or decrease, and of those who expected an increase, 64% expected that the increase would be less than 10%.  These numbers are not in line with a serious recovery throughout 2011, and the Commerce Departments statistics from Q1 back up CEO perceptions.

Read: Profits Rise Amid Slow U.S. Growth
Read: Confidence on the Rise for Big Companies While Small Ones are Still Wary