Corporate Profits Fall While GDP Growth Slows

The economy grew a meager 0.6 percent during the fourth quarter of 2007, according to final figures released today by the Commerce Department. At the same time, corporate profits dropped 3.3 percent, a much larger dip than the 0.1 percent decline forecast by Wall Street. They've now fallen for two consecutive quarters as high energy costs and slow consumer demand hit the bottom line.

Many economists expect U.S. growth to turn negative in the first three months of 2008, with a shallow recession to follow, before recovering late in the year. The final report for 2007 included some signs of just such a scenario.

Foreign trade, which rose 6.5 percent, was strong enough to offset slower domestic spending. Plus, earlier estimates of consumer spending growth were revised up slightly, to 2.3 percent from 1.9 percent. Also, inventory levels dropped faster than expected in the fourth quarter, according to Global Insight, leaving less room for companies to slash future production through early 2008.

Rising unemployment, turmoil in the financial markets, and the ongoing housing slump continue to dampen optimism that the economy can avoid a contraction.

A separate report showed a slight drop in weekly jobless claims, which fell by 9,000 to 366,000. But claims have been edging higher for some time, and analysts at High Frequency Economics say "it is clear that the trend is rising and is now approaching the level seen immediately before the start of the recession in 2001."