Updated May 25, 2023 - Economy

Fed's bond losses a drag on U.S. corporate profits

Data: U.S. Bureau of Economic Analysis; Chart: Axios Visuals
Data: U.S. Bureau of Economic Analysis; Chart: Axios Visuals

The broadest measure of U.S. corporate profits continued to decline last quarter, the Commerce Department said on Thursday.

Yes, but: That includes profits from the Federal Reserve, which has taken historic losses on its massive bond portfolio as it rose interest rates at a rapid clip. Strip that out and corporate profits hit an all-time high, as Bloomberg reports.

  • By the numbers: Overall, corporate profits fell 5.1% in the first quarter. Compared to the same period a year, ago, profits are down 2.8%.
  • But, as Bloomberg notes, excluding the Fed, profits continued to rise in the first three months of the year — though at a slower pace than previous quarters.

Of note: Figures for Gross Domestic Income, an alternate measure of growth that sums up the income across the economy, were also released Thursday morning.

  • GDI fell at an annualized 2.3% rate in the first quarter, after a 3.3% decline in Q4.

The other side: The second estimate of first-quarter U.S. gross domestic product was revised slightly higher to a 1.3% annualized pace, compared to the initial 1.1% estimate, thanks in part to stronger consumer spending than first thought.

  • In principle, GDP and GDI should be identical, but since the pandemic, the two measures have diverged, further complicating the story about the U.S. economy.
  • The figures may be revised in the coming months, perhaps to be more in step with one another.

The big picture: Economic data continues to be messy and confusing, but the broad picture seems to be that spending remains healthy, even in the face of sluggish or negative income growth.

Editor's note: This story has been updated to clarify details about corporate profits and the Federal Reserve's bond portfolio.

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