GDP in Q4 revised upward to 1.4%; corporate profits’ drop not seen as recession sign

From NAM’s Manufacturing Economy Daily blog

Bloomberg News (3/25, Jamrisko) cited the Commerce Department as announcing Friday that GDP growth in last year’s fourth quarter was upwardly revised to 1.4% from an initial 1% estimate, “supported by stronger household spending on services.”

Bloomberg said the tweaked numbers “also showed that corporate profits dropped in 2015 by the most in seven years,” 7.8%, which “illustrates the limits of an economy struggling to gather steam at the start of this year.”

The AP (3/25, Crutsinger) noted that although the latest projection exceeded the Commerce Department’s forecast a month ago, it’s “still below” the 2% annualized growth in the third quarter. The AP said the economy’s “new-found strength” was largely derived from “consumer spending on services such as recreation, which helped offset a manufacturing slump caused in part by a global economic slowdown.”

The story added that although “profit declines of [the] magnitude” cited in Friday’s data “can raise concerns about a possible recession,” IHS Global Insight economist Nariman Behravesh “said they were heavily influenced by the weakness in the energy sector.”

Bloomberg News (3/25, Miller, Tanzi) also highlighted “concern” over corporate profits, whose fourth-quarter drop of 11.5% was the steepest since a 31% year-on-year collapse at the end of 2008 “during the height of the financial crisis.”

Despite the profit slump, Reuters (3/25, Mutikani) and the Wall Street Journal (3/25, A2, Morath, Subscription Publication) suggested that strong consumer spending shows the economy is healthy enough to avert fears of a recession.

Chief Economist Chad Moutray, writing in the NAM’s Shopfloor (3/25) blog, noted that Friday’s official GDP growth estimate was the third for the October-December quarter, following forecasts of 0.7% and then 1%.

“Overall, demand and output remain significantly challenged in the manufacturing sector, and business leaders remain nervous in their economic outlook,” Moutray wrote, noting that current estimates are for “real GDP” to increase 2.1% this year, with manufacturing production up 1.5%.

Associated Industries of Missouri is the sole official designated partner of the National Association of Manufacturers in Missouri.