Corporate Profit Growth Slowed in First Quarter --- Bottom Line at Many Firms Could Begin to Get Hit; Inflation Pressures Rise
WASHINGTON -- Growth in corporate profits slowed in the first months of the year, while profit margins improved only slightly, suggesting that the bottom line at many firms may begin to suffer in the months ahead.</br></br>In its first look at first-quarter corporate results, the Commerce Department said that profits, adjusted for the impact of inflation on inventories and depreciation, rose 3.8%, slightly slower than the 4% gain recorded in the last months of 1999. Profits were 7.6% higher than they were a year earlier, down from a 9.6% year-over-year change in the fourth quarter of last year. Profit margins, meanwhile, inched up 0.1% to 9.8% for the quarter, but have been relatively flat for the past two years.</br></br>"The peak rate of profit growth is behind us," said David Orr, chief economist with First Union Bank Corp. in Charlotte, N.C. "There will still be growth, but at a decelerating rate."</br></br>The numbers were included in the department's revised first-quarter gross-domestic-product report. In the first three months of the year, GDP -- the broadest measure of goods and services produced by the U.S. economy -- surged ahead at a brisk 5.4% annual rate, confirming the department's earlier estimate. Many analysts had expected the GDP numbers -- which came on the heels of a torrid 7.3% pace in the fourth quarter of last year -- to be revised downward slightly.</br></br>As in the preliminary report, the data suggest that inflationary pressures continue to build in the economy. The gross- domestic-purchases portion of the GDP figures, which Commerce officials point to as the broadest gauge of inflation in the report, rose 3.2% for the quarter, its sharpest gain in more then ten years. The increase, the same as in the department's earlier estimate, follows a 2.3% gain in the fourth quarter of 1999. The measure tracks increases in the prices paid by companies and individuals.