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By New_Deal_democrat May 29, 2014 12:32 pm
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Long leading indicator corporate profits decline in Q1 2014

Along with the downward revision to Q1 GDP, which confirms for the upteenth time that most of the US had an unusually severe winter, the preliminary estimate for Q1 corporate profits was released.

Corporate profits, particularly as adjusted by unit labor costs, are a long leading indicator for the economy,  They typically decline by at least one year before the overall economy does, and sometimes make their high near mid-cycle.

Unsurprisingly, given the rest of the GDP report, Q1 corporate profits, both unadjusted and as adjusted by unit labor costs, declined.  Here is a graph of corporate profits adjusted by unit labor costs for the last 5 years.

As you can see, this is quite a small decline.  Several bigger declines were quickly reversed earlier in the cycle.

At the same time, corporate profits generally appear to be decelerating, as shown in this representation of the same data on a YoY basis:

Profits are only up 9% from 2 years ago.  Still, if as many suspect, Q2 amounts to a strong positive reversal of Q1, then corporate profits are likely to also make a new adjusted high in three months as well.  In the meantime, they are certainly consistent with the economy continuing to expand through the remainder of this year.

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