Mixed Bag on Corporate Profits

The BEA breakdown showed that profits of domestic nonfinancial corporations fell by 6.1% (-$79.6 billion), after previously rising by 1.4%. Profits of domestic financial corporations fell by only 0.5% (-$2.1 billion), after having fallen by 2.7%. The BEA data showed that profits from the rest of the world fell by about 7.7% (-$29.0 billion) after falling 8.8%.

So, with all the negatives, the reason for the “it depends on how you look at it” is because corporate profits have increased 4.5% over the past four quarters.

The BEA data also showed that profits from current production, which is corporate profits with inventory valuation adjustment and with a capital consumption adjustment, decreased $110.8 billion in the first quarter. That is after having fallen by $30.4 billion in the fourth quarter of 2014.

Where the BEA report gets interesting is that taxes on corporate income increased by $25.3 billion in the first quarter. That was after falling $4.8 billion in the fourth quarter. The first-quarter changes in taxes on corporate income mainly reflect the expiration of bonus depreciation provisions.

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While you can debate the quality of the rising profits, it turns out that dividends increased $5.8 billion in the first quarter. That is on the heels of an $18.6 billion gain in the fourth quarter. Undistributed profits decreased $141.8 billion, compared with a decrease of $44.3 billion in the fourth quarter.

Keep in mind that this is very backward looking, as it is first-quarter data. This may have mattered at the end of 2014, during the first quarter itself and during April when the corporate profits were all reported. By now, well this is probably an afterthought.