Corporate profits hit record high as economy boomed in fourth quarter of 2023

Gross domestic product (GDP) and corporate profits were both lower than expected in the fourth quarter of 2023, as the ripple effects of pandemic stimulus hit the U.S. economy.

Commerce Department data showed GDP grew 3.4%, lower than the strong 4.9% growth seen in the third quarter but still higher than recent expectations of 3.2%.

Adjusted profit after tax hit a record high of $2.8 trillion, surpassing the previous record of $2.7 trillion in Q3 2022. Earnings increased 3.9% from the quarter, beating expectations of about 3.3%.

“Today’s report…reveals that corporate profits increased significantly in the fourth quarter, hitting a new record high,” EY economist Lydia Boussall said in an analysis. “Pre-tax corporate profits rose $133 billion on the back of a $109 billion advance, the largest increase since Q2 2022.” [estimate]”

“Profit margins expanded for the second consecutive quarter, increasing by 0.3 percentage points to 12.2% of GDP, as unit labor costs were tightly contained due to productivity gains,” she wrote.

Fourth-quarter inflation, as measured by the “core” personal consumption expenditures (PCE) price index, which excludes food and energy categories, is a key indicator for the Federal Reserve, but forecast for the third quarter is 2.0%. Inflation in the third quarter was 2.1%. Second.

The latest monthly core PCE data was released on Friday, with an annualized increase of 2.8% in January.

With widespread expectations that the U.S. economy will slow toward the end of 2023, and some expecting the unemployment rate to rise significantly, the final forecast for fourth-quarter results was even more surprising.

Market commentators welcomed news of Thursday’s numbers.

“This reflects the continued resilience of the U.S. economy,” Michelle Kluber, head of ETF portfolio at GlobalX, said in an analysis.

“It is encouraging that this upward revision is mainly due to private consumption and non-residential fixed investment,” he said.

Commerce Department statistics also showed a 4.8% increase in gross domestic income (GDI), a different way of measuring production that looks at sales rather than income.

In theory, GDP and GDI should be equal, but the discrepancy between the two indicators has some market commentators seeing signs of a coming recession. The 4.8% rise in GDI in the fourth quarter marks the first time since 2022 that GDI has outpaced GDP growth.

The two measures, another leading indicator of the economy, averaged 4.1%, which analysts called “solid.”