The third estimate of GDP for the first quarter of 2011 came out this morning, and of note is what it says about corporate profits by industry. Compared to the fourth quarter of 2010, domestic corporate profits increased in the first quarter of this year by $84.9 billion, up 6.4% from the previous quarter. This increase was led by growth among manufacturing ($39.1 billion), wholesale trade ($28.8 billion) and “other” non-financial firms ($44.4 billion). The largest loser was the financial sector which took a $57.4 billion hit.
Corporate profits are important for two reasons: (a) higher profits can boost consumer spending, and (b) higher profits help repair and boost corporate balance sheets, leading to more hiring and investing (recall that the private sector has added more than a million jobs over the last six months).
The really cool chart below shows how profits are distributed across the economy and where they stand as of the first quarter of 2011 relative to before the recession in 2007. I’ve used this chart before, but it is so excellent that it merits another encore. The size of the boxes represent distribution across America’s corporate landscape, and the color of the boxes indicate where profits stand relative to 2007, the year before the recession hit (we don’t look at where profits stand relative to their highest pre-recession point because different industries peaked at different times). The darker the blue color, the greater the profits relative to their pre-recession levels. The darker the red color, the lower the profits compared to pre-recession levels.
Overall, domestic corporate profits totaled $1.41 trillion in the first quarter of 2011 at an annual rate, compared to $1.34 trillion in 2007. In terms of total profits earned, the financial sector – despite its decrease in the first quarter – still leads the way with $378.4 billion in profits, followed by “other” non-financial services with $ 357.0 billion in profits.
With that said, always take the profit report from an individual quarter with a grain of salt, as profits on a quarterly basis can be impacted by tax changes, unanticipated events and other quirky factors.
~Mark Doms, Chief Economist, U.S. Department of Commerce
June 24th, 2011
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