November 27, 2019

Corporate profits before tax with inventory valuation and capital consumption adjustments rose 0.2% in the third quarter after having risen 3.8% in the second quarter.  During the last year profits on this basis has declined 0.8%.  The IVA and CC adjustment deals with the difference in depreciation allowances used for accounting and income tax purposes.  Hence, changes in tax laws impact this series and it does not accurately reflect profits from current production.

Corporate profits before tax without such adjustments, or profits from current production, fell 1.5% in the third quarter after having risen 3.4% in the second quarter.  Over the course of the past year such profits have declined 1.6%.  We expect this series on profits to rise at about a 5.0% pace in 2020.

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The economy climbed at a  2.5% pace in 2018 and we expect growth of 2.4% in both 2019 and 2020.  Inflation will rise modestly.  Interest rates have 0.75% since midyear.  In addition, corporate profits will benefit from a cut in the tax rate, and by a significant reduction in their regulatory burden.  As a result, corporate profits should climb at a solid 5.0% pace in 2020.

Stephen Slifer

NumberNomics

Charleston, SC