Profits fall 3.3% in fourth quarter
U.S. corporate profits fell 3.3% in the fourth quarter of 2007, according to government data that also confirmed U.S. economic growth slowed to a meager annual pace of 0.6% in the same period.
A second government report showed the number of U.S. workers filing new claims for jobless benefits fell by 9,000 last week and that the number of people remaining on benefit rolls after receiving an initial week of aid also declined.
Wall Street analysts surveyed before the reports had expected a 0.1% drop in corporate profits, despite a crisis in the sub-prime mortgage market that has hobbled U.S. economic growth.
The drop in corporate profits was the first in a year, and the Commerce Department said profits of both financial and nonfinancial companies fell.
The department said nonfinancial company labor costs rose but were partially offset by price increases.
U.S. Treasury bond prices extended their retreat after stock index futures rose in response to the drop in new jobless claims. “With the light volume we’ve been having, any sort of headline is going to move [the market] sort of quickly,” said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, N.J. However, “anyone who thinks we’re not in a recession is living under a rock. Let’s just get it over with.”
Profits rose just 2.6% for all of 2007, compared with a much-healthier 12.2% gain in the prior year.
The Commerce Department’s third and final reading of fourth-quarter U.S. gross domestic product, which measures total goods and services output within U.S. borders, was unchanged at a 0.6% increase, matching expectations before the report.
The economy grew 2.2% for all of last year, the slowest rate since 2002, the Commerce Department said, as economists were forecasting a possible recession this year.
Spending on new homes plunged 25.2% in the fourth quarter, the biggest drop since 1981, the department said.
The housing market woes have rattled worldwide financial markets, forcing the Federal Reserve to aggressively cut its key interest rate by 3 percentage points since mid-September.
The gloomy economic news continued into this year with data Wednesday showing that sales of new U.S. single-family homes fell to the slowest pace in 13 years while orders for durable goods tumbled unexpectedly last month.
The personal consumption expenditures price index, which excludes food and energy and is the Fed’s favored inflation measurement, increased 2.5% in the fourth quarter, compared with the previous estimate of a 2.7% rise.
