Corporate Profits Off--a First for ‘90s

Corporate profits declined last year for the first time this decade even though the American economy grew robustly, according to government data released Wednesday.

Profits slipped 1% in the fourth quarter and 2.2% for all of 1998, the Commerce Department said. It was the first annual drop since 1989, when profits fell 4.8% just before the 1990-91 recession.

The rare decline came during a year when the gross domestic product, the sum of all goods and services produced within U.S. borders, grew a healthy 3.9% for the second consecutive year.

The economy expanded at an explosive annual rate of 6% in the fourth quarter, revised slightly from a previous estimate of 6.1%, for the strongest quarter in the long-running expansion--now entering its ninth year of steady growth--since the GDP moved ahead at a 6.1% pace in the second quarter of 1996.

Profits were pinched by the combination of increasing labor costs, thanks to the lowest unemployment rate in 29 years and the inability of manufacturing firms to raise prices in the face of competition from imports produced in countries with devalued currencies.

Though painful for many companies, particularly energy and agricultural producers, declining commodity prices helped hold a price index tied to the GDP to a tiny 1% increase last year, the smallest since 1959.

In its final revision of the economy’s fourth-quarter performance, the Commerce Department said it trimmed last month’s growth estimate slightly because inventory investment and government spending were lower than it initially believed.

* In a separate report, the Commerce Department said orders for factory goods fell 2.5% in February, the biggest drop since a 2.6% decline in April 1995, after a revised 1.5% rise in January. A 30.6% plunge in aircraft orders and a 38.2% plunge for military goods led the decline, but they were joined by smaller drops for industrial machinery and electronic equipment.

* A third report showed a sharp spike upward in March manufacturing activity in the Midwest, signaling that a factory recovery throughout the U.S. may be under way. The National Assn. of Purchasing Management-Chicago said its regional index climbed to 57.0 from 52.9 in February and included increases in new orders, production and employment in March.