Washington, DC, Nov. 25--The U.S. Commerce Department reported Tuesday that corporate profits rose 30%, the largest year-over-year change in 19 years, in the third quarter. The gauge exceeded an annual rate of $1 trillion for the first time in history.
Meanwhile, the government revised its estimate for third-quarter growth up to an annual rate of 8.2%, from the previously reported 7.2% pace, largely because companies didn't reduce inventories as aggressive as previously thought in the face of booming consumer demand. Less inventory reduction meant more actual output of goods.
For many American companies, the combination of faster economic growth, which spurs revenue gains, and rapid productivity improvements, which helps to contain costs, is helping to boost the bottom line. Better profits, in turn, are expected to give business executives added confidence to hire more workers and invest more aggressively in new projects.
"This is making us more confident that this [recovery] is sustainable," said James Glassman, an economist with J.P. Morgan Chase & Co. "Hiring is already under way and my guess is it is going to accelerate."
The government estimated corporate profits rose to an annual rate of $1.003 trillion in the third quarter from $771 billion in the third quarter of 2002 and $897 billion in the second quarter of 2003, on a seasonally adjusted basis. These figures are the government's broadest measure of profits for the whole U.S. economy and include listed and nonlisted companies. It makes adjustments for changes in the value of inventories and for depreciation and changes in the value of capital equipment.
Other measures of corporate profitability have turned decisively higher during the past six months.
Among 1,489 companies tracked by Dow Jones & Co. in the US Total Market Index, net income rose 70% in the third quarter from a year earlier, to $133 billion. The figures are those actually reported by listed companies under generally accepted accounting principles, without the many special adjustments that Wall Street analysts often make to the numbers. The figures also aren't recorded at an annual rate, as are the Commerce Department figures.
Helping to make comparisons to a year ago more favorable, the latest reported results included fewer charges and asset write-offs than last year, when many companies were cleaning their books due to restructuring efforts, new accounting rules and bookkeeping scandals.
Energy and finance companies were big winners in the third quarter. Exxon Mobil Corp. said its net income increased 38% to $3.65 billion, thanks to higher oil and natural gas prices. Chevron Texeco Corp. went from a loss of $904 million to $1.96 billion in profits. Meanwhile, J.P. Morgan Chase said profit rose to $1.63 billion from $40 million, due to a significant reduction in bad loans to the corporate sector. Citigroup Inc. said profit rose 20% to $4.69 billion.
But the gains weren't limited to these two sectors. Among 87 industries tracked by Dow Jones, 66 saw profit improving. Among 235 technology companies included in the total, the bottom line swung from a collective loss of $7 billion to a collective profit of $8.9 billion. Included among them was a gain for Internet-service providers. Soft-drink makers saw a 14% increase in reported net income, industrial companies saw a 70% improvement, and consumer companies reported an 87% improvement.
"No matter how you slice it, this was a terrific quarter," said Chuck Hill, director of research at Thomson First Call, which tracks corporate earnings.
