(at annual rate)
US corporate profits declined -6.8% at annual rate in Q4 2015 vs Q3 of the same year, according to Bureau of Economy Analysis data (profits before taxes with inventory valuation adjustment). Most of this decline is due to the petroleum & coal sector, whose profit declined $124 bn, and to net overseas profits that fell $6.4 bn . Domestic profits excluding petroleum and coal declined only -1.7% a.r, or $38.8bn.
Over one year (Q4 2015 vs Q4 2014), US corporate profits fell -2.1%, or $47 bn. Petroleum & coal (down $134.8 bn) and net overseas profits (down $47.1b) again accounted for most of the decline, while domestic profits excluding petroleum & coal were up +7.6% (or $134.9bn).
Profits are volatile on a quarterly basis and recently have clearly borne the mark of low oil and the strong USD. Thus, we do not believe that the general profit trend will be as negative in 2016 as in Q4 2015.
However, we do think that, beyond those short term figures, there will be a continuing deceleration (starting from high points, as, despite the recent fall, US profits still account for a large part of total added value by historical standards, see 3d graph). Indeed, the economy is now running close to potential, with more signs of tightening in the labour market that should generate some moderate upside pressure for wages. Therefore, the best of the current US profit cycle is now behind us.