March 25, 2016
Seriously, that is what they said, more or less. An AP news article on the latest revision to fourth quarter GDP data told readers:
“Friday’s report also contained a potentially worrisome sign — a weak first estimate of corporate profits. It showed that pretax profits fell 7.8 percent in the fourth quarter after a 1.6 percent drop in the third quarter. Fourth quarter profits were also down 11.5 percent from a year earlier — the steepest annual drop since 30.8 percent plunge in the fourth quarter of 2008 at the depths of the financial crisis.”
It is not clear what about this drop in corporate profits is supposed to be worrisome. Corporate profits had risen at the expense of wages during the downturn. The profit share of national income is still well above its pre-recession level. Companies continue to have more profit than they know what to do with, since investment is still slightly below its pre-recession share of GDP, so there is not a plausible story that companies will somehow have to curtail investment due to shrinking profits. So why is AP worried that workers are getting back some of the income share they lost during the downturn.
As the piece notes, consumption was revised upward. The saving rate was reported as 5.0 percent in the fourth quarter, not much different from the 4.8 percent rate recorded in 2013, the low for recovery. The Post and other media outlets gave extensive coverage to economists explaining why consumers were being cautious and not spending their dividend from falling energy prices. The data now indicate that they were not being cautious, that they were pretty much spending it at the same rate as other income. (Well, at least it kept some economists employed.)
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