Corporate Profit Falls 1%; Foreign Operations Cited

Corporate profit after taxes dipped 1% in the first quarter, the first drop since the beginning of last year, the Commerce Department reported Thursday.

The department had previously estimated that corporate profit after taxes rose 0.5% in the first quarter.

Most of the decrease was attributed to a sharp drop in profit on foreign operations, primarily because of increased payments to foreign residents by U.S. companies’ foreign affiliates.

The department said corporate profit after taxes dropped $1.4 billion, or 1%, in the first quarter, to a seasonally adjusted annual $144.2 billion, the first loss since the first quarter of 1987.

“As foreigners own more of American business, we have to give them more of the earnings,” said Robert Dederick, chief economist for the Northern Trust Co. of Chicago.

Dederick said the total profit picture was warped by the foreign losses, however.

“Domestically, we did mighty darned well,” he said. “We have a strongly rising economy and unit costs were lower. Costs were held down by a combination of productivity gains and restraint on wages and it flowed right into profits.”

Evans Economics Inc., a Washington forecasting firm, had predicted that the effects of a first-quarter deficit in the nation’s broadest measure of international trade would begin to show up in Thursday’s report.

The deficit, the first since 1958, was attributed to huge drains from U.S. investments abroad, switching the account from a $12-billion surplus in the fourth quarter of 1987 to a $700-million debt in the first quarter of 1988.

“Indeed this is just the first glimpse of a very large iceberg, which we estimate will increase to $50 billion per year by 1993,” the weekly Evans economic report stated.