The Rising Influence of Rising Affluence

[DewDiligence]

3Q11 Profits Rise Sharply Despite Modest Increase in US GDP

http://online.wsj.com/article/SB10001424052970204531404577053910216209718.html

›NOVEMBER 22, 2011, 12:06 P.M. ET
By JEFFREY SPARSHOTT And JEFF BATER

Corporate profits in the U.S. rose even as the economy grew less than initially thought during the third quarter as companies fought through a tepid recovery.

Gross domestic product, the broadest measure of all the goods and services produced in an economy, grew at an inflation-adjusted annual rate of 2.0% in the July to September period. While still the strongest performance of the year, the Commerce Department's second estimate of GDP is lower than the advance estimate of 2.5%. Economists surveyed by Dow Jones Newswires expected a revised figure of 2.3%.

A big downward revision to inventory investment--and smaller adjustments to business investment and consumer spending--dragged down the GDP number.

Despite a slow recovery, corporate profits--after tax and unadjusted for inventories or capital consumption--rose at a 6.5% seasonally adjusted rate compared with a year earlier, the Commerce Department said in its first estimate for the quarter. Profits were up 2.5% from the prior period, the third consecutive quarterly increase. Even as many corporate balance sheets appear healthy, the economy's slow pace of growth hasn't been enough to bring down unemployment much or boost wages. The unemployment rate was 9.0% in October and has been stuck close to that level all year.

That's frustrated some policy makers.

"I am deeply unhappy with the current forecast of prolonged high unemployment, and will continue to review whether there is more that we could do that would bring more benefit than cost," William Dudley, president of the Federal Reserve Bank of New York, said last week. "We are not out of ammunition."

One possible step: the Fed could buy more mortgage-backed securities to revive the ailing housing market.

Still, some at the central bank are worried that new measures would fuel higher inflation, and it's not clear if the Fed will take additional steps.

The core inflation rate--which excludes volatile moves in food and energy prices and is closely watched by the Fed--increased 2.0% from the previous quarter. That was revised down from an initial estimate of 2.1%.‹