Corporate Profits

Profits from current production (corporate profits with inventory valuation and capital consumption adjustments) decreased $52.9 billion in the fourth quarter, compared with a decrease of $20.5 billion in the third quarter. The fourth-quarter profits estimates reflect large adjustments that raised profits in the national income and product accounts (NIPAs) relative to profits as reported in corporate financial source data in order to account for differences in the treatment of asset write-downs and loan-loss provisions, which are not expensed in current-production profits in the NIPAs.

Current-production cash flow (net cash flow with inventory valuation and capital consumption adjustments) -- the internal funds available to corporations for investment -- decreased $55.7 billion in the fourth quarter, compared with a decrease of $21.1 billion in the third.

Taxes on corporate income decreased $15.0 billion in the fourth quarter, compared with a decrease of $20.7 billion in the third. Profits after tax with inventory valuation and capital consumption adjustments decreased $37.9 billion in the fourth quarter, in contrast to an increase of $0.3 billion in the third. Dividends increased $21.7 billion, compared with an increase of $23.5 billion; current-production undistributed profits decreased $59.5 billion, compared with a decrease of $23.3 billion.

Domestic profits of financial corporations decreased $74.4 billion in the fourth quarter, compared with a decrease of $32.5 billion in the third. Domestic profits of nonfinancial corporations decreased $34.3 billion in the fourth quarter, compared with a decrease of $14.4 billion in the third. In the fourth quarter, real gross value added of nonfinancial corporations increased, and profits per unit of real product decreased. The decrease in unit profits reflected increases in both the unit labor and nonlabor costs corporations incurred that were partly offset by an increase in unit prices.

The rest-of-the-world component of profits increased $55.8 billion in the fourth quarter, compared with an increase of $26.4 billion in the third. This measure is calculated as (1) receipts by U.S. residents of earnings from their foreign affiliates plus dividends received by U.S. residents from unaffiliated foreign corporations minus (2) payments by U.S. affiliates of earnings to their foreign parents plus dividends paid by U.S. corporations to unaffiliated foreign residents. The fourth-quarter increase was accounted for by an increase in receipts and a decrease in payments.

Profits before tax with inventory valuation adjustment is the best available measure of industry profits because estimates of the capital consumption adjustment by industry do not exist. This measure reflects depreciation-accounting practices used for federal income tax returns. According to this measure, domestic profits of financial and nonfinancial corporations decreased in the fourth quarter. The decrease in nonfinancial corporations reflected decreases in wholesale trade, in manufacturing, and in transportation and warehousing that were partly offset by increases in information and in utilities. Within manufacturing, the decrease was more than accounted for by petroleum.

Profits before tax increased $0.2 billion in the fourth quarter, in contrast to a decrease of $51.8 billion in the third. The before-tax measure of profits does not reflect, as does profits from current production, the capital consumption and inventory valuation adjustments. These adjustments convert depreciation of fixed assets and inventory withdrawals reported on a tax-return, historical-cost basis to the current-cost measures used in the national income and product accounts. The capital consumption adjustment decreased $4.1 billion in the fourth quarter (from -$237.4 billion to -$241.5 billion), compared with a decrease of $3.0 billion in the third. The inventory valuation adjustment decreased $49.1 billion (from -$20.3 billion to -$69.4 billion), in contrast to an increase of $34.4 billion.

Effective with this release, chained-dollar gross value added of nonfinancial corporate business was revised beginning with 2004. The current-dollar gross value added is deflated by a revised chain- type price index calculated using the gross value added chain-type index for nonfinancial industries from the annual revision of the GDP-by-industry accounts that were released in January 2008.

Corporate profits in 2007

Profits from current production increased 2.7 percent in 2007, compared with an increase of 13.2 percent in 2006. Domestic profits decreased 3.0 percent, in contrast to an increase of 12.3 percent. The rest-of-the-world component of profits increased 31.2 percent, compared with an increase of 17.9 percent.

Taxes on corporate income increased 2.8 percent in 2007, compared with an increase of 15.5 percent in 2006. Profits after tax with inventory valuation and capital consumption adjustments increased 2.6 percent, compared with an increase of 12.2 percent. Dividends increased 13.8 percent, compared with an increase of 16.2 percent; current-production undistributed profits decreased 16.8 percent, in contrast to an increase of 5.9 percent.

According to the measure of profits before tax with inventory valuation adjustment, domestic profits of financial and nonfinancial corporations decreased in 2007. The decrease in nonfinancial corporations reflected a decrease in """"other"""" nonfinancial that was partly offset by increases in information, in retail trade, in manufacturing, in utilities, in transportation and warehousing, and in wholesale trade. Within manufacturing, increases in most industries shown were partly offset by a decrease in petroleum.


Available at:

http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm