GDP Now in Contraction, Corporate Profits Decline

Bloomberg was calling for a drop of 0.5% and Dow Jones was calling for a drop of 0.6%.

The prior GDP price index remained static from the preliminary reading at 1.3%. Bloomberg was calling for 1.3% as well.

As a reminder, much of the contraction is blamed on the weather’s impact on production and on consumption. Higher imports and slower inventory growth were also a part of the negative GDP reading.

Another issue is that raw corporate profits are declining. The Commerce Department showed that first-quarter corporate profits on an after-tax basis, without inventory valuation and capital consumption adjustments, were at $1.88 trillion. That was down from $1.905 trillion in the fourth quarter.

The good news about this contraction is that it is expected to be an isolated drop. We have also seen a reversal of many of the trends that were negative going back to positive in the second quarter.

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