Profits Under Pressure: Part I

By Andrew Paparozzi
In March 27, 2008

Is the slowdown in the economy hurting profits? According to the latest data from the Bureau of Economic Analysis (BEA) it is, and the pain is being felt economy wide. In its final estimate (for now) of fourth quarter gross domestic production (GDP), the BEA left the increase at 0.6% after adjusting for inflation—anemic to say the least.

The latest release also showed that before-tax corporate profits from current production declined at an annual rate of $52.9 billion in the fourth quarter, after declining $21.1 billion in the third quarter. Note that the overall picture for corporate profits would have looked much worse if not for a net gain of $55.8 billion from the rest-of-the-world component. Also note that we can’t place the blame entirely on the much-maligned financial companies. Domestic profits of nonfinancial corporations decreased $34.3 billion in the fourth quarter on top of a $14.4 billion drop the previous quarter. Although the gross value added adjusted for inflation increased in the fourth quarter for nonfinancials, profits per unit declined as hikes in unit labor and nonlabor costs more than offset an increase in unit prices. Sound familiar. It should, at NAPL we’ve been talking about the pressure building on profitability in commercial printing for over a year.

Corporate profits for the full year increased 2.7% in 2007, significantly less than the 13.2% gain recorded in 2006. And 2008 is not shaping up to be much better—the latest consensus from Blue Chip Economic Indicators has corporate profits declining 1.6% for the year. This is the environment— profits under pressure—many of your clients are operating in, and this is the environment they need solutions for.

Joseph V. Vincenzino

Andrew Paparozzi

Epicomm's Andrew Paparozzi, Vice President/Chief Economist, is well-known for his accurate and thoughtful discussions on the economy and US commercial printing industry. A foremost author and speaker on economic business trends in the printing industry, Paparozzi heads Epicomm's Printing Economic Research Center.

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