US corporate profits surge; GDP revised higher to 6.6% 

US corporate profits surge; GDP revised higher to 6.6%

The U.S. grew a bit faster in the spring than previously estimated, with a surge of US corporate profits to a fresh record high in the second quarter.

The jump in profits reported by the Commerce Department on Thursday was despite businesses facing increased costs owing to shortages of raw materials and labour. 

The resurgence in infections driven by the Delta variant of the coronavirus is chipping away demand for services like air travel and cruises, leading economists to cut their third-quarter growth estimates.

Gross domestic product, the official scorecard for the U.S. economy, rose at a revised 6.6% annualized pace in the second quarter. Originally the increase was put at 6.5%.

The upward revisions to last quarter’s GDP growth reflected a slightly more robust pace of consumer spending and business investment than initially estimated. Demand was driven by one-time stimulus checks from the government to some middle- and low-income households.

The revised GDP report also included the first look at corporate profits in the second quarter. Adjusted pretax profits jumped at a 9.2% annual rate and suggest businesses have plenty of capital to continue to invest and hire.

Profits from current production increased by US$234.5 billion or at a 9.2% quarterly rate to a record US$2.8 trillion, after rising at a 5.1% pace in the first quarter. They were driven by a US$169.8 billion surge in profits at domestic non-financial corporations. There were also gains in domestic financial corporations profits as well as rest-of-the-world profits.

National after-tax profits without inventory valuation and capital consumption adjustments, conceptually most similar to S&P 500 profits, increased US$303.6 billion or at a 12.8% pace, up from the 9.4% pace notched in the January-March period.

Profits were up 69.3% from a year ago, partially exaggerated by low base comparisons in the second quarter of 2020, following mandatory shutdowns of nonessential businesses.

The Federal Reserve has maintained its ultra-easy monetary policy stance, keeping interest rates at historically low levels and boosting stock market prices.

Stocks were trading lower. The dollar rose against a basket of currencies. US Treasury prices were mostly lower.

Damon Harrison
Market Analyst, IPG Group