Corporate Profits Take Biggest Fall Since ’86

Corporations’ after-tax profits fell 5.4% in the April-June quarter, the biggest decline in three years, the Commerce Department said Tuesday.

The decline followed a smaller 1.1% drop in the first three months of the year and left after-tax profits at an annual rate of $164.3 billion in the second quarter.

Analysts attributed the drop, the biggest since a 16.5% decline in the first quarter of 1986, to rising business costs.

U.S. businesses have enjoyed substantial profit gains over the past two years, reflecting a major cost-cutting effort and a boom in export sales.

But many economists predicted that this period is drawing to a close and profit increases this year will be much more modest.

Led by Auto Earnings

“We could not keep the boom in corporate profits going forever,” said Allen Sinai, chief economist of Boston Co. “The second quarter represents a slowing of that extraordinary momentum, primarily because of cost increases for energy and raw materials.”

The decline in profits for the second quarter was lead by a drop in earnings for auto companies, the report said. Profits for transportation companies and public utilities, however, rose during the second quarter.

Among the details in the profits report:

- Before-tax profits dropped a sharp 6.4% in the second quarter, to a seasonally adjusted annual level of $297.6 billion, after falling a slight 0.3% in the first quarter.

- Corporate profits, after adjusting for depreciation and inventories, fell 2.3% in the second quarter, to a seasonally adjusted annual rate of $309.1 billion, after posting an even bigger 7% decline in the first quarter.

- Corporate cash flows, a measurement intended to show the funds that corporations have for investment, rose 1.6% in the second quarter, to an annual rate of $394.7 billion, after falling 5.6% in the first quarter.

- Dividend payments to stockholders increased 2% to an annual rate of $120.9 billion, after a 2.9% increase in the first quarter.