August 29, 2019

Corporate profits before tax with inventory valuation and capital consumption adjustments jumped 5.3% in the second quarter after having fallen 3.8% in the first quarter.  During the last year profits on this basis have risen 2.7%.  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, rose 5.0% in the second quarter after having declined 1.5% in the first quarter.  Over the course of the past year such profits have risen 1.9%.  We expect this series on profits to rise at about a 5.0% pace for the year as a whole.

The economy climbed at a  2.5% pace in 2018 and we expect growth of 2.5% in 2019.  Inflation will rise modestly.  Interest rates have fallen sharply and short rates are expected to fall further before yearend.  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 2019.

Stephen Slifer


Charleston, SC