Profits Surge in 4th Quarter Amid Sluggish GDP Growth

U.S. corporations pocketed their strongest profit gains in four years during last year’s closing quarter despite a sharp and probably temporary slowdown in economic growth, according to a government report released Thursday.

Gross domestic product increased at a 1.7% annual rate in the fourth quarter, slightly up from the 1.6% estimate last month and in line with forecasts but sharply down from the third quarter’s 4.1% pace, the Commerce Department said.

Prices also rose more rapidly in the fourth quarter, distressing financial markets for suggesting a more prolonged cycle of interest rate rises, and stocks of unsold goods rose.

Much of the fourth-quarter economic softness reflected weaker consumer spending on new cars and other durable goods in the wake of devastating hurricanes that hit the Gulf Coast region in late summer and fall.

Some of that spending is expected to be shifted to this year and, together with hefty spending on reconstruction, is forecast to produce robust first-quarter GDP growth.

An inflation gauge frequently cited by the Federal Reserve -- the price index for personal spending excluding food and energy -- was revised to a 2.4% annual rate in the fourth quarter from the 2.1% estimated a month ago.

That was well ahead of the 1.4% rate in the third quarter.

Also Thursday, the Labor Department reported that new claims for jobless benefits fell 10,000 last week to 302,000 from an upwardly revised 312,000 the previous week, implying a resilient job market. The department is scheduled to issue its March employment report April 7.

The Commerce Department also issued its first look at fourth-quarter corporate profits with the GDP report.

After-tax profit surged in the fourth quarter as the effect of uninsured losses from the hurricanes waned. Businesses posted a 13.8% increase after the 4.3% decline in the third quarter.

Some of the profit increase was simply a rebound from an extraordinary third quarter, when many businesses in the Gulf Coast region were damaged or temporarily closed by storm damage.

The Commerce Department said the quarterly rate of increased profit was the strongest since the 18.9% jump in the fourth quarter of 2001.

The rate of growth in consumer spending, which fuels about two-thirds of economic activity, slowed sharply in the fourth quarter, expanding at 0.9% instead of the 1.2% estimated a month ago.

It was the weakest increase since a 0.6% rise in the first quarter of 1995 and just a fraction of the 4.1% rate for the third quarter.

Business inventories increased at a $37.9-billion annual rate in the fourth quarter, higher than the $30.4-billion estimate the department reported last month. Inventories dropped at a $13.3-billion rate in the previous quarter.

Economic performance is expected to bounce back strongly in this year’s opening quarter, with some forecasts for GDP growth as high as 5%.