Econoday Report: Corporate Profits 21, 2005

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Corporate Profits

Definition
Corporate profits, as reported by the Bureau of Economic Analysis (BEA), are summarized briefly as the income of organizations treated as corporations in the national income and product accounts. The BEA reports several measures of profits. Profits from current production (corporate profits with inventory valuation and capital consumption adjustment), are also known as operating or "economic" profits. Capital consumption adjustment deals with the differences in depreciation allowances used for accounting and income tax purposes. Inventory valuation adjustment (IVA) deals with the difference in measuring the cost of inventory replacement. Book profits amount to operating profits subtracting out inventory valuation and capital consumption adjustments. After tax profits are book profits after taxes are subtracted. The Econoday reports will focus on after tax profits reported by the BEA, since these are the most relevant.

The corporate profit figures that are derived from the national income and product accounts (NIPA) depend on GDP growth. They don't always move in the same direction or the same magnitude as the profit data reported directly by individual companies or even the S&P 500. Why Investors Care

Released on 12/21/05 For Q3 2005

After-tax Profits, Y/Y change
Actual	35.9%

Highlights
New data for third-quarter corporate profits showed only fractional change, at an annual rate of $1.032 trillion compared with $1.040 trillion in the second quarter (profits are after tax and exclude inventory valuation and capital consumption adjustments).

The Commerce Department said hurricane damage cut $165.3 billion from the quarter's profits (pretax including inventory valuation and capital consumption adjustments; note that pre-tax profits in this category totaled $1.293 trillion, down from $1.347 trillion in the second quarter). Hurricane damage reflects benefits paid by domestic insurance companies and uninsured losses of corporate property.

Corporate profit data from the Commerce Department rarely have any effect on the markets, but today's data do underscore the enormous strength of American business.

Trends

Corporate profits are key in the determination of a company's stock price. When corporate profits are rising, then stock prices will likely rise; when profits are falling, then equity prices will probably decline as well. Notice that the overall level of profits was not very different from 1997 to 1998, but the year-to-year change was quite dramatic. Usually, the stock market will react to the year-to-year change in profits.

Data Source: Haver Analytics

2005 Release Schedule

Released On: 3/30 5/26 6/29 8/31 9/29 11/30 12/21

Released For: Q4 Q1:06 Q1 Q2 Q2 Q3 Q3