June 24, 2021
Corporate profits from current production (corporate profits before tax with inventory valuation and capital consumption adjustments) rose by $55.2 billion in the third quarter which works out to an annualized rate of increase of 15.5% after having declined 1.4% in the fourth quarter. During the last year profits on this basis have risen 15.5%. Corporate profits in the first quarter were at a record high level. The IVA and CC adjustment deals with the difference in depreciation allowances used for accounting and income tax purposes.
In the wake of all the fiscal stimulus packages and the vaccine finally bringing the virus under control, we expect GDP growth of 8.0% this year and 4/9% in 2022. At the same time core inflation should rise about 4.5% this year and 3.4% in 2022 which should give firms a bit of pricing power. And, finally, the Fed has pledged to keep short rates at 0.0% for the foreseeable future. This is about as good an environment for corporate profits and stock prices as one could possibly imagine.