Categories: Media Moves

Coverage: Economy grew at faster rate in fourth quarter

In what is being portrayed in the business media as a good news, bad news scenario, the government released data Friday morning that showed the economy grew at a faster-than-expected rate in the fourth quarter, but company profits also fell.

Eric Morath and Jeffrey Sparshott of The Wall Street Journal had the day’s news:

Gross domestic product, the broadest measure of goods and services produced across the economy, advanced at a 1.4% seasonally adjusted annual rate in the fourth quarter, the Commerce Department said Friday. That was an upward revision from last month’s estimate of 1% growth.

Economists surveyed by The Wall Street Journal estimated the latest revision would show 1% growth.

The revision mainly reflects better consumer spending on services, signaling domestic stability in the face of overseas headwinds that stung manufacturers, energy firms and financial markets.

The balance sheets of U.S. companies weakened during the quarter. Corporate profits after tax, without inventory valuation and capital consumption adjustments, fell at an 8.1% pace last quarter from the third. That was largest quarterly decline since the first quarter of 2011. Profits fell 3.3% in third quarter from the second. On a year-over-year basis, corporate profits declined 3.6% in the fourth quarter.

Jeffry Bartash of MarketWatch.com noted that the earnings decline was the first since the Great Recession:

The drop in annual profits last year is the first since 2008, when the U.S. was in the middle of the worst downturn since the 1930s.

Weak earnings call into question whether companies can continue to add new workers at a rapid clip, increase investment and sustain an economic recovery that’s almost seven years old.

The upward revision in fourth-quarter U.S. gross domestic product, from the second estimate of 1% growth made last month, stemmed almost entirely from higher consumer spending on recreation and transportation.

Consumer spending increased at a 2.4% annual pace in the final three months of 2015, up from a prior 2% estimate.

Michelle Jamrisko of Bloomberg noted that the lower corporate earnings raises concerns about the economic rebound:

The earnings slump illustrates the limits of an economy struggling to gather steam at the start of this year. Some companies, encumbered by low commodities prices and sluggish foreign markets, are cutting back on investment while a firm labor market and low inflation encourage households to keep shopping.

“It’s really U.S. consumers who are powering the global economy forward at this point,” said Gus Faucher, an economist at PNC Financial Services Group Inc. in Pittsburgh. At the same time, “there are pressures on businesses in terms of the stronger dollar, rising labor costs and slowing productivity growth” even as a rise in energy prices will help ease that drag for oil producers.

The median forecast of 73 economists surveyed by Bloomberg called for fourth-quarter growth of 1 percent, with projections ranging from no change to a 1.4 percent gain. This is the last of three estimates for the quarter before annual revisions in July.

The figure marks a slowdown from the 2.2 percent average pace in the first three quarters of 2015. For all of last year, the U.S. economy grew 2.4 percent, matching the advance in 2014.

Chris Roush

Chris Roush was the dean of the School of Communications at Quinnipiac University in Hamden, Connecticut. He was previously Walter E. Hussman Sr. Distinguished Professor in business journalism at UNC-Chapel Hill. He is a former business journalist for Bloomberg News, Businessweek, The Atlanta Journal-Constitution, The Tampa Tribune and the Sarasota Herald-Tribune. He is the author of the leading business reporting textbook "Show me the Money: Writing Business and Economics Stories for Mass Communication" and "Thinking Things Over," a biography of former Wall Street Journal editor Vermont Royster.

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