Corporate Profits Fall for First Time Since Recession

For years, unemployed Americans have complained that even as companies have done so well, workers’ own fortunes have stagnated.

Like employment, corporate profits plummeted during the financial crisis; but unlike employment, profits bounced back almost as quickly as they had fallen. Then, in subsequent quarters, profits kept climbing and climbing, reaching record highs each month. Millions of workers sat on the sidelines, watching companies sit on mountains of cash rather than hire. Employers said economic uncertainty kept them from hiring, since they were concerned that the orders would stop rolling in.

Whether attributable to prescience or self-fulfilling prophecy, business has finally stagnated.

Corporate profits declined last quarter, ticking down by $6.4 billion or 0.3 percent in seasonally adjusted annual terms. A small decline, yes, but it was also the first decline since the fourth quarter of 2008, when the great recession was still raging.

Given the cushion of cash that companies accumulated in the last three years, last quarter’s decline probably didn’t break the bank for too many companies. However, it will probably make companies even more fearful about expanding.

Interestingly, profits fell entirely because of declines in foreign markets, not because of business problems at home.

Profits from domestic business rose at a seasonally adjusted annual rate of $41.7 billion in the first quarter, while the rest-of-the-world component of profits decreased $48.1 billion.

It is no wonder, then, that Washington has been watching developments in Europe so warily.