In a heated economy, profits start to droop
The Commerce Department recently reported that U.S. corporate profits (after tax) declined by 1.2% during the first quarter of 1998. This drop follows a decline of 2.3% over the final quarter of 1997, and shows the extent to which higher wage costs and slower export sales are eroding corporate cash flow. Revised first quarter corporate profits registered at $477.9 billion (after tax), $125.7 billion or 26% of which remained as undistributed profits. The majority of the total profits, 73%, were paid out in dividends.
Over the 5-yr period beginning in 1992, profits recorded an annual average growth rate of 13.2%. After-tax profit growth slowed to 7.3% during 1997 — a level still sufficient to fuel strong capital spending and to reward investors generously. The past two quarters probably overstate the degree of weakness in the long-term profit growth, but look for profit gains to average about 4% during 1998-1999.