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Corporate profits on upswing again, GDP report shows

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         Corporate profits on upswing again, GDP report shows

The U.S. grew slightly faster at a 2.1% pace in the fourth quarter and corporate profits rose again, offering further evidence that the economy entered 2017 on stronger footing than it did a year earlier.

Gross domestic product, the official scorecard for the economy, was revised up from 1.9% annual rate of growth owing to higher spending on gasoline and travel-related services, the government said Thursday.

In recent trading, the Dow Jones Industrial Average

DJIA, +0.33%

rose slightly.

Consumer spending in the fourth quarter was raised to a 3.5% from 3%, largely accounting for the revision to GDP. Originally the government had estimated the gain in spending at just 2.5%.

Most other figures in the report were little changed.

More good news came by way of another increase in corporate profits—the third in four quarters.

Adjusted-pretax profits rose at a 0.5% annual pace in the fourth quarter after a nearly 6% gain in the third quarter, the Commerce Department said. Profit figures are adjusted for depreciation and the value of inventories.


         Corporate profits on upswing again, GDP report shows

Profits improved rapidly in the second half of 2016 and over the past year they’ve climbed at a 9.3% clip, the fastest gain since 2012.

By contrast, corporate profits tumbled 3.1% in 2015 to mark the first decline since the 2007-09 recession. Companies were beset by a weak global economy and a strong dollar that curbed imports. Key industries such as energy and agriculture also took a hit amid a broad decline in commodity prices.

Last year profits revived as the world economy improved, commodity prices stabilized, the dollar fell in value and companies took extra step to reduce costs. The U.S. companies that made out best did so via their overseas operations where profits rose strongly.

Higher profits are a good sign for the economy, suggesting that businesses can do more hiring and spend. Many companies are hopeful in early 2017 that a pro-business Trump White House will ease regulatory burdens and take other steps to provide relief, giving them further impetus to expand.

“The post-election surge in business sentiment is broadly expected to support stronger investment – a key support to stronger growth that has been largely elusive thus far in the current expansion,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors.

For all of 2016 the U.S. grew 1.6%, down from a 2.6% in 2015. The last time the U.S. topped 3% growth—the historical average is 3.3%—was in 2015.

Early signs in 2017 point to an increase in business investment, a development that could put a bit more wind at the back of a U.S. economy constrained to 2% annual growth since it exited the recent recession.

Other changes in fourth-quarter GDP:

—The increase in inventories was revised to $49.6 billion from $46.2 billion;

—exports were revised to a 4.5% decline from 4%;

—imports were revised to a 9% increase from 8.5%;

—the increase in government spending was lowered to a 0.2% from 0.4%;

—Inflation as measured by the PCE index was raised to a 2% annual rate from 1.9%.

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