Profits of U.S. Firms Rise 5.3% in 3rd Quarter : Best Performance Since First Quarter of 1984

After-tax corporate profits rose 5.3% in the third quarter, their best performance since early last year, the government reported Wednesday.

The Commerce Department said businesses earned after-tax profits at an annual rate of $144.7 billion in the third quarter after a much smaller 0.3% gain in the second quarter.

It was the biggest increase since a 6.7% rise in the first quarter of 1984. Since that time, profits actually fell for five straight quarters as corporate America suffered a battering from stiff foreign competition and the overall economic slowdown that began in the middle of last year.

Beryl Sprinkel, chairman of the President’s Council of Economic Advisers, said the recent stock market rally was due in part to the improved profit picture, not just to the belief that interest rates were headed lower.

“We are seeing an acceleration (in economic activity) and a very substantial increase in profits,” he said at a briefing for reporters.

The increase in the third quarter came primarily from gains recorded by factories producing non-durable goods and businesses engaged in retail trade.

Domestic profits of financial corporations actually went down in the third quarter by $200 million, compared to a rise of $5.5 billion in the second quarter.

Among the details of the profits report:

- Before-tax profits also rose 5.3% in the third quarter to $232.8 billion following a 0.6% decline in the second quarter.

- Corporate profits, after adjusting for depreciation and for inventories that the companies had on hand, rose 7.6% in the third quarter to $321.4 billion following a 2.1% increase in the second quarter.

- Corporate cash flow--a new government measurement intended to show the funds that corporations have available for investment--rose 5.8% in the third quarter to a level of $406.5 billion.